Block Assessment without Satisfaction Is Void

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:

   Financial Year                  Purchases
1998-99                     Rs.  2,13,49,890/-
1999-2000                   Rs. 28,98,21,836/-
1.4.2000 to 20.8.2000       Rs.  5,57,36,782/-

33. The income tax authorities found and seized several sales and purchase bills issued by Bemco when they searched the premises No. 5A/12, Ansari Road. Daryaganj, Delhi. The Assessing Officer has found certain irregularities in these bills and these have been listed in paragraphs 6.2 to 6.7 of the block assessment order. He has noticed that the sales bills seized were not in the order in which the vouchers were prepared. The sales bills also have the names of the mediators written on their reverse. Some pages in the sales bill book were left blank. Illustrations of such irregularities have been given in the assessment order.

34. In order to test and probe the claim that Bemco was really and genuinely engaged in the business of purchase and sales of jewellery, gold, silver and diamond ornaments, the Assessing Officer launched into a detailed enquiry. The enquiry was made under certain broad heads which are as follows:

(a) Whether there existed a show-room of Bemco at 1182, Kucha Mahajani, Chandni Chowk, Delhi?

(b) Whether there existed a branch office of Bemco at B-108, Jai Sidhi Apartments, Ahmedabad?

(c) Whether any business was conducted from the aforesaid address in Ahmedabad?

(d) Whether the books of account maintained and produced by Bemco were

(e) Was any evidence found in the seized material showing that Bemco gave only accommodation entries?

(f) Enquiries conducted at Amritsar – what do they show?

(g) What is the relevance of the confession of Girish Mittal, resident of 388, Sainik Vihar, Delhi?

These are the broad heads under which the Assessing Officer has examined the claim of Bemco and the discussion is found at pages 22 to 40 of the block assessment order in the case of Manoj Aggarwal.:

35. It is necessary here to clarify that IT (SS)No. 452/Del/2003 is an appeal filed by Bemco Jewellers Pvt. Limited which arises out of the block assessment order passed on 29.8.2002 under Section 158BC of the Act. The search took place under Section 132 on 3.8.2000 in the premises of Bemco at 7/22, Ansari Road, Daryaganj, Delhi. Very briefly stated, the relevant facts are that the Assessing Officer, who was the same Assessing Officer who assessed Manoj Aggarwal, took the view in the assessment of Bemco that it was carrying on only accommodation entry business and that it was not carrying on any real business of purchase and sale of jewellery. To reach this conclusion, the Assessing Officer has given several reasons in the assessment order and it is common ground before us that the reasons are the same as those given in the block assessment order passed in the case of Manoj Aggarwal. In fact, no separate arguments were advanced by the parties before us in the appeal of Bemco since the arguments advanced in the case of Manoj Aggarwal covered the appeal of Bemco also. In the assessment of Bemco, as already noted, the Assessing Officer took the view that the names and accounts of Bemco were used by Manoj Aggarwal, Director for providing accommodation entries. He, therefore, estimated the commission income at Rs. 16,29,072/- (net) on the basis of 0.50 paise per Rs. 100/- as was estimated in the case of Manoj Aggarwal. The Assessing Officer further added the commission income in the assessment of Bemco on protective basis, the substantive addition having been made in the assessment of Manoj Aggarwal. It may be noted that the total purchases were shown by Bemco at Rs. 36,69,08,500/- on which commission was estimated @ 0.50 paise per Rs. 100/- which worked out to Rs. 18,34,542/- and deducting the income already shown by the company in its returns live balance income was taken at Rs. 18,10,079/-. This was the figure which was added on substantive basis in the assessment of Manoj Aggarwal. However, in the assessment order of Bemco from the figure of Rs. 18,10,079/- further expenses of 10% were deducted and thus the net undisclosed commission income was worked out at Rs. 16,29,072/- and the same was added on protective basis. The position ultimately is that whereas a sum of Rs. 16,29,072/- was added as net commission income on protective basis in the assessment of Bemco, a sum of Rs. 18,10,079/- was added in the assessment of Manoj Aggarwal on substantive basis. However, but for this small variation in the amount of the net commission income, the substance of the assessment is the same in both the cases. We have, therefore, not considered it necessary to deal with the appeal of Bemco in IT(SS)A. No. 452/Del/2003 separately. Our reasons and decision in the case of Manoj Aggarwal will decide the fate of the appeal of Bemco also.

36. Existence of show-room at 1182, Kucha Mahajani, Chandni Chowk, Delhi:

The Assessing Officer has dealt with this in paragraph 7.1 of his order. He has held that there was no sales office or showroom of Bemco in the above address and the reasons given by him are as follows:

(a) In the sales-tax record, as per the report of the sales-tax inspector dated 15.2.1999, the only premises mentioned is 7/22, Ansari Road, Daryaganj, Delhi. There is no mention of any Kucha Mahajani address.

(b) The inspector of income-tax who was deputed to conduct local enquiries found no shop in the name of Bemco in the building, He also reported that no one in the building knew of the existence of a sales office of Bemco.

(c) Even though the report of the inspector was put to Bishan Chand Aggarwal, the other director of Bemco, he could not effectively displace the finding of the inspector. He could not also produce Ram Pehlwan or Omi Mama who were stated to have shops in the same building and who were mentioned by Bishan Chand Aggarwal as persons who can confirm that Bemco had a shop in the building. Further, these two persons had furnished signed statements saying that they were not aware of any sales office of Bemco in the building. The statement of Bishan Chand Aggarwal that these two persons were knowing about the shop only as the shop of Bishan Chand Aggarwal and not as the sales office of Bemco was not acceptable.

37. CIT (Appeals) in paragraph 15 of his order noted that there was no evidence in the sales-tax record regarding the sales and purchase office at Kucha Mahajani and the report of the income-tax inspector confirmed the same. Before him, the assessee had produced an application made before the sales-tax authorities for amendment in the local registration certificate for adding the address of Kucha-Mahajani as additional business premises. The notice posting the application for clearing was also produced before the CIT (Appeals). The CIT (Appeals) however noticed that in the notice issued by the sales-tax department it was mentioned that various other required documents were not produced. From all these facts, he agreed with the Assessing Officer that Bemco did not have any showroom or sales office a 1182, Kucha Mahajani. The assessee had also relied upon the report of the sales-tax inspector but this was rejected by the CIT (Appeals) on the ground that the assessee had not produced any sales-tax order confirms that the new business premises (at Kucha Mahajani) was registered with the sales-tax department. For these reasons, the finding of the Assessing Officer was confirmed.

38. Existence of branch office of Bemco at B-108, Jai Sidhi Apartment, Ahmedabad:

The Assessing Officer has dealt with this issue in paragraph 7.2 of the assessment order. In the course of the assessment proceedings the assesses furnished details showing substantial sales from the branch office at the aforesaid address. Out of the total sales of Rs. 26,07,63,735/-, during the financial year 1999-2000, sales from Ahmedabad amounted to Rs. 24,07,30,000/- as per the details furnished. The Assessing Officer issued commission under Section 131(d) to the DDIT, Ahmedabad to conduct an enquiry and find out whether Bemco had a branch at Ahmedabad at the aforesaid address as claimed and also to verify the veracity of the sales claimed to have effected from the said address. The DDIT, Ahmedabad found that the premises Apartment were tenanted to one Vijay Aggarwal who was not traceable and that the flat was locked. He also reported that the fiat is of just 70 sq.yds. of area and belong to the low income group. According to him, no business was ever conduced from the address. The DDIT recorded a statement on 19.8.2002 of one Manoj Sudhir Bhai Shah, who was the builder developer of the property. The gist of the statement is that Manoj Sudhir Bhai Shall had constructed Jai Sidhi Apartment which consisted of 32 flats, that he was controlling the administration of the apartments, that Smt. Anita Vijay Aggarwal had occupied the flat from 2.4.1998, that she was residing there with her husband-Vijay Aggarwal and (sic) children that there was no other person residing in the flat, that Vijay Aggarwal was carrying on textile business and Anita Aggarwal was a housewife, that no permission had been asked for by them for conducting any business from the flat and that no customer was found visiting the flat. To a pointed question, Manoj Shah stated that the flat was not used as a jewellery showroom and no board was put outside the same and that it was used for residential purposes only. He was also not aware as to the whereabouts of Vijay Aggarwal and his family and stated that the flat was locked for the past 6 to 8 months. A copy of the statement of Manoj Shah was given to Bishan Chand Aggarwal, director of Bemco, who stated that Manoj Shah was residing at No. 20, Riddhishwar Society, Nava Vadaj Road, Ahmedabad, that he was only an administrator and was not frequently visiting the apartments and, therefore, may not be aware of the activities of the residence of the society and that Vijay Aggarwal could have been a better person to give the correct facts. When it was put to him that Vijay Aggarwal was not traceable he offered to trace him and produce before the Assessing Officer within a week. However, he could not do so. After narrating the above facts, the Assessing Officer has acknowledged in the assessment order as follows:

Page 7 of annexure A-7 seized from 5A/12, Ansari Road, Daryaganj is a letter-head of M/s. Bemco Jewellers P. Ltd. Dated 4.4.1999 where the branch transfer address of Ahmedabad is shown as a residence of Shri Vijay Aggarwal.

Having said that, the Assessing Officer concluded that the assessee had no branch office in Ahmedabad as claimed.

39. On appeal, the CIT (Appeals) upheld the finding of the Assessing Officer, observing that the assessee failed to rebut the various points raised by the Assessing Officer against the existence of the Ahmedabad office.

40. Conduct of business from the Ahmedabad office:

As regards the question whether the Bemco conducted any business from the Ahmedabad branch, the Assessing Officer has dealt with the question in paragraph 7.3 of the assessment order in the case of Manoj Aggarwal. He has referred to the statement of Bishan Chand Aggarwal recorded on 16.8.2002. In response to the queries of the Assessing Officer, Bishan Chand Aggarwal stated that the goods were being carried between Ahmedabad and Delhi by Manoj Aggarwal, that they were being carried personally by him, that he always travelled by train since the travel was always at short notice, that he used unreserved accommodation and that the used tickets were not in the possession of Bemco because they have to be surrendered to the railway authorities, that the sales were always in cash and the cash was also brought from Ahmedabad to Delhi for being deposited in the bank and that such deposits were made within a week after the return from Ahmedabad. It was observed by the Assessing Officer that during the financial year 1999-2000. Bemco had shown 73 visits to Ahmedabad and back by Manoj Aggarwal. and the traveling expenses amounting to Rs. 3,74,440/-. The traveling allowance bills which were in Form TR-25, which is normally used by Government servants, were impounded by the Assessing Officer under Section 131(d). Bemco had also claimed that there were two sales-cum-field boys working in Ahmedabad. However, Bishan Chand Aggarwal could not remember their names. They were paid a combined salary of Rs. 5,500/- per month and the vouchers for the salary which were produced during the assessment proceedings were also impounded. It was noticed by the Assessing Officer that these vouchers did not contain the names of the employees nor were they signed by them. In the light of these facts, the Assessing Officer refused to accept the claim of Bemco that it had conducted business from Ahmedabad office. His finding was upheld by the CIT (Appeals). However, no specific reasons have been given by the CIT (Appeals) for doing so presumably because he had upheld the finding of the Assessing Officer that there was no branch office in Ahmedabad.

41. Whether the books of account of Bemco are genuine?

As regards this issue, the relevant discussion is contained in paragraph 7.4 of the block assessment order in the case of Manoj Aggarwal. It shows that during the assessment proceedings of Bemco the Assessing Officer had called upon Bemco to produce the complete set of books of account, bills and vouchers and stock register for the full block period. Despite several opportunities, only some of the books of account were produced on 16.7.2002 and 19.7.2002, but the books of Ahmedabad operation were not produced. It was explained by the assessee that due to communal trouble in Ahmedabad, they could not be produced. Ultimately, some more books of account including those of Ahmedabad operation were produced before the Assessing Officer on 7.8.2002. They were impounded. The purchase bills, vouchers or stock register were however not produced. The Assessing Officer observed that the books of account “clearly appear to have been freshly prepared” and that the bills for sales in Ahmedabad were mere computer generated sheets showing cash sales without mentioning addresses of the purchasers. According in the Assessing Officer, these bills were freshly prepared. The same authorized signatory has signed all the bills with the same ink. The expense vouchers were not supported by any bills and were found to be checked with the same ink through-out. The Assessing Officer further noticed that the bills for sales in Delhi have been re-prepared incorporating the bills seized during the search. The new bill books were in serial order and included the bills, which have already been seized. The Assessing Officer noted that the books of account had not been found during the search in the premises of Bemco. When this was put to Bishan Chand Aggarwal he stated that the Delhi books were kept in the showroom at Kucha Mahajani and the Ahmedabad books were kept in the Ahmedabad branch. When the Assessing Officer asked how the books of account could be computerized when the assessee did not have a computer, it was explained that personal computers at the residence of the directors and their office at 7/22, Ansari Road, Daryaganj were used. When Bishan Chand Aggarwal was asked why the books of account were not found in Ansari Road during the search where they normally should be, because the computers were at this address, Bishan Chand Aggarwal replied that one computer was temporarily shifted to the shop (presumably the reference is to the shop at Kucha Mahajani) and the accounts were written there. He also stated that one Ramesh Chand who was also the computer operator of Bemco was visiting the shop for writing the books of account. The Assessing Officer did not accept the explanation of Bishan Chand Aggarwal since he had already held that the assessee did not have any shop or showroom in Kucha Mahajani or in Ahmedabad. He also referred to the statement of one Arvind Thakar, Sales-tax Consultant of the assessee in Ahmedabad in which he stated that he has never seen the books of account of Bemco in Ahmedabad and that the figures of sales and purchase were supplied to him by the directors of Bemco. When this statement was put to Bishan Chand Aggarwal and he was asked to explain why the books were never shown to the sales-tax consultant and how the figure of purchases and sales could have been provided from Delhi when the books were at Ahmedabad, Bishan Chand Aggarwal responded by saying that the books of account at Ahmedabad branch were shown either to Thakar or to his staff whenever required and the figures of sales and purchase for Delhi were provided by him (Bishan Chand Aggarwal) from his books regarding transfer of stock from Delhi to Ahmedabad.

42. In the course of the search, certain handwritten notes had been seized from 5A/12, Ansari Road, Daryaganj showing figures of sales and purchase sent from Delhi for declaring them in the sales-tax returns at Ahmedabad. These notes are referred to as Annexure A-7 in the assessment order. A discrepancy in the figures of sales of Ahmedabad branch was noticed by the Assessing Officer and he asked Bishan Chand Aggarwal to explain the same. Me was asked to explain in whose handwriting the note was written and also why it should not be held that the sales figure of Ahmedabad were manipulated by Bishan Chand Aggarwal. Bishan Chand Aggarwal slated that he could not remember whose handwriting it was and explained that the figures of sales in Ahmedabad might have had to be corrected on the basis of the figures given by the Ahmedabad staff. To a specific question as to why it should not be held that no books of account were actually maintained in Ahmedabad and that the figures of sales were manipulated and modified, Bishan Chand Aggarwal stated that the handwritten note was prepared for the purpose of filing sales-tax returns in Delhi and that the words in the note did not actually mean that he wanted to” manipulate the figures but they only meant that the figures were changed after discussing the same with him.

43. The Assessing Officer thereafter referred to tax audit report furnished by Bemco along with the return for the assessment year 2000-2001 which mentioned that inventory records were not produced before the auditors for their verification. The auditors have further pointed out that most of the purchases could not be verified and that there was no documentary evidence made available to them to show the transfer of goods from Delhi to Ahmedabad and for remittance of the cash from Ahmedabad to Delhi. When the audit report was put to Bishan Chand Aggarwal, he stated on 19.8.2002 that stock records were available with Bemco and were ready, but due to shortage of time the auditors may not have checked them and the figures may not have been made available to them in the format in which they wanted. The Assessing Officer also pointed out that auditors had also expressed their inability to confirm the genuineness of the purchase transactions of Bemco. Bishan Chand Aggarwal replied that since. Bemco was purchasing old jewellery from different parties who were not having any printed sale book, Bemco was forced to issue its own purchase book. Bemco also thought it unnecessary to get the sellers signature in the purchase bill. As regards the non-furnishing of documentary evidence to show transfer of goods from Delhi to Ahmedabad and remittance of cash from Ahmedabad to Delhi, Bishan Chand Aggarwal stated that documents relating to these were ready with Bemco but were not seen by the auditors. The Assessing” Officer was unable to accept the explanation of Bishan Chand Aggarwal for the various discrepancies in the records. He, therefore, rejected the books of account of Bemco as not reliable invoking Section 145 of the Income-tax Act. The CIT (Appeals) has not given any specific finding on this aspect of the case though he has referred to the same very briefly in paragraph 12 of his order.

44. Evidence found in the seized material showing that Bemco gave only accommodation entries:

This issue is considered in paragraph 7.5 of the block assessment order in the case of Manoj Aggarwal. The Assessing Officer noted in brief certain entries in the cashbook of Manoj Aggarwal which have been admitted by him as representing accommodation entries. At page 33 of the block assessment order, the Assessing Officer has referred to six items of seized material which were seized from 5A/12, Ansari Road, Daryaganj which showed transactions of Bemco and they were noted with the other transactions representing accommodation entries. The Assessing Officer stated that all these papers have been accepted by Manoj Aggarwal to be related to his business of accommodation entries. Thereafter, he specifically referred to the account of one Sunil Kapoor, which is page 29 of annexure A-7. According to the Assessing Officer, Sunil Kapoor was a mediator who helped the beneficiaries get accommodation entries from Bemco/Manoj Aggarwal for remuneration. The Assessing Officer noticed that in the account, the bill number, the name of the party who sold the jewellery to Bemco, the date of the bill and the description of the jewellery was mentioned. A copy of this account of Sunil Kapoor is at page S9 of the paperbook. The total of the transactions came to Rs. 55,72,338/- and commission of Rs. 78,013/- was clearly mentioned. There were similar accounts of two other person noted as B.L. and G.K. at pages 31 and 37 of A-7, and according to the Assessing Officer, these persons were also mediators working for commission.

45. The Assessing Officer also noticed that 14 amounts totaling to Rs. 6,56,83,700/-were transferred into Bemco’s account No. 1106 with Vijaya Bank, Vigyan Vihar, New Delhi from various accounts of Manoj Aggarwal, which, according to the Assessing Officer, were used for giving accommodation entries. These transfers, according to the Assessing Officer, showed that “There is a cross nexus between the accounts of M/s. Bemco Jewellers P. Limited and the other accounts used by Sh. Manoj Aggarwal for accommodation entries”. In the light of these facts, the Assessing Officer held that Bemco was used for providing accommodation entries for earning commission income.

46. Enquiries conducted at Amritsar:

This is discussed by the Assessing Officer in paragraph 7.6 of the block assessment order. He noticed that there were several parties who had sold jewellery to Bemco and they belonged to Amritsar. The ledger account of Sunil Kapoor seized during the search had mentioned the names of some of these persons. The DDIT, Amritsar had recorded statements from Sunil Kapoor on 3.12.2001 and 23.7.2002. According to the Assessing Officer, in this statement Sunil Kapoor had accepted that these persons had shown bogus sales of jewellery to Bemco. The relevant part of the statement is extracted at page 34 of the assessment order of Manoj Aggarwal. It is seen therefrom that Sunil Kapoor had narrated how he came into contact with Manoj Aggarwal and has also explained the modus operandi adopted by Manoj Aggarwal to give accommodation entry to M/s. Novelty Group of cases through one Satish Kapoor, who was helped by Sunil Kapoor in getting the accommodation entry. Sunil Kapoor has confirmed in this statement that no jewellery was ever sold or purchased, but only entries were given to show that there was actual sale and purchase of jewellery. A copy of the statement of Sunil Kapoor was given to Manoj Aggarwal and his statement was recorded on 25.7.2002. Manoj Aggarwal admitted that he knew Sunil Kapoor but denied the allegations made in the statement of Sunil Kapoor. The Assessing Officer did not accept the version of Manoj Aggarwal for the reason that the name of Sunil Kapoor appeared in his books as mediator and even a copy of the reconciliation statement was found during the search. The CIT (Appeals) has referred to these facts in paragraph 13 of the appellate order. His findings are contained in paragraph 15 of his order. According to him, the assessee had not successfully rebutted the statement of Sunil Kapoor and could not prove that it was given under duress. He thus confirmed the finding of the Assessing Officer.

47. Confession of Girish Mittal:

This is discussed in paragraph 7.7 of the block assessment order passed in the case of Manoj Aggarwal. Girish Mittal is a resident of 388, Sainik Vihar, New Delhi. There was a search of his premises on 3rd August 2000 under Section 132 of the Income-tax Act. Apparently, he was incharge of several private trusts and had sold jewellery belonging to the trusts to Bemco. The details of the trusts, the year of sale and the amount for which the jewellery was sold are given in a tabular form at pages 35 & 36 of the assessment order. According to the Assessing Officer, Girish Mittal admitted that all the transactions of sale of jewellery to Bemco were bogus. The relevant part of his statement given on oath on 28.8.2000 has been extracted in page 36 of the assessment order. The Assessing Officer gave a copy of the statement of Girish Mittal to Bemco. Bemco asked for an opportunity to cross examine Girish Mittal. The opportunity was given but was not availed of by Bemco. The Assessing Officer, therefore, held that all the transactions of Bemco were bogus accommodation entries. In the order of the CIT (Appeals), there is a passing reference to the statement of Mittal in paragraph 15 (page 12) but there is no specific finding.

48. In the block assessment order passed in the case of Manoj Aggarwal, after discussing the aforesaid aspects of the case, the Assessing Officer in paragraphs 7.9 & 7.10 has summarized his findings and the objections of Bemco/Manoj Aggarwal. Finally, in paragraph 7.11 of the order, he has concluded as under:

7.11 As has been discussed at length in the foregone ports of this order, it is conclusively proved that the company M/s Bemco Jewellers V Ltd. was not doing any real business of sale or purchase of jewellery. The bank accounts of this concern was used by Sh. Manoj Aggarwal for providing bogus accommodation entries of sale and purchase of jewellery to various persons. The nature of activities of this concern are in no way different from the other entities which have used by the assessee for providing accommodation entries. The commission income arising from such bogus accommodation entries has arisen in the hands of Sh. Manoj Aggarwal since he was the person controlling all the affairs of the company. Thus, it is held that commission income has been earned by Sh. Manoj Aggarwal on the total claimed purchases of Rs. 36,69,08,500/- by the company from incorporation till the date of search. This commission is taken @ 50 paisa which works out to Rs. 18,34,542/-. However, the company has disclosed income of Rs. 1838/- during the A.Y. 1998-99, income of Rs. 19,051/-cluring A.Y. 2000-01 and income of Rs. 3572/- upto the date of search. This total income of Rs. 24,461/- is reduced from the commission income of Rs. 18,34,542/- and hence, the undisclosed commission income on these transactions is worked out to Rs. 18,10,079/-.

The aforesaid conclusion has been upheld by the CIT(Appeals).

49. Before us. Mr. Ved Jain, the learned Representative for the assessees (Bemco and Manoj Aggarwal) firstly contended that the seized material disclosed regular business carried on by Bemco in purchase and sale of jewellery and, therefore, the conclusion of the Assessing Officer that the entries represent accommodation entries was contrary to the record. He drew our attention to pages 78 to 154 of the paperbook, which contained the queries raised by the Assessing Officer and the answers provided by the assessees and pointed out that neither Manoj Aggarwal nor Bemco had at any point of time stated that the accounts of Bemco contained only accommodation entries. It was submitted that it was only the inference of the Assessing Officer that the entries were accommodation entries, which according to him, was only unjustified and contrary to the record. Our attention was drawn to pages 441 and 442 of the paperbook which are copies of the report of the sales-tax inspector and a statement of Bishan Chand Aggarwal (undated) respectively, which supported the claim that Bemco had a shop or sales office functioning from 1182, Kucha Mahajani, Chandni Chowk, Delhi. Attention was also drawn to page 447 of the paperbook, which is a copy of the rent receipt issued by the landlord in respect of the aforesaid premises for the month of January 1993. According to the learned representative for the assessee the aforesaid items of evidence established the claim that Bemco had a sales office in Kucha Mahajani.

50. Mr. Jain drew our attention to pages 191 to 196 of the paperbook, which is a copy of the show-cause notice dated 20.8.2002 issued by the Assessing Officer to Manoj Aggarwal. Particular attention was drawn to the query raised in paragraph 4 of the notice in which the Assessing Officer had concluded that Bemco had only done accommodation business for commission and since this business was totally controlled by Manoj Aggarwal he was asked to show cause why commission income cannot be assessed in his hands as undisclosed income. It was submitted that there was absolutely no material unearthed during the search to show that Bemco was indulging in accommodation entry business or that such business was fully controlled by Manoj Aggarwal. The submission was that in a block assessment under Section 158BC of the Act, it is not open to the Assessing Officer to indulge in surmises and that the undisclosed income has to be computed only on the basis of the evidence found during the search. It was submitted that no information had come into the possession of the Assessing Officer in the course of the block assessment proceedings and relatable to the evidence found during the search to show that the transactions were accommodation entries and not real. The Assessing Officer had not carried out any cross verification of the transactions from the sellers, which could have proved Bemco’s purchases to be genuine. It was submitted that the Bemco had asked for cross examination of Girish Mittal and Sunil Kapoor vide letter dated 26.8.2002 and though admittedly these statements were used against Bemco and Manoj Aggarwal, they were not given the opportunity to cross examine Girish Mittal and Sunil Kapoor which was a gross violation of the rules of natural justice. The learned representative for the assesses in this connection drew our attention to the judgments of the Supreme Court in Vasantji Vela v. CST 40 STC 544 and Satish Gupta v. ITO 40 STC 278. He pointed out that Bemco started business in 1182, Kucha Mahajani from 1.4.2000, in the premises which had been taken on rent by Manoj Aggarwal from January i 998 as was evident from the copy of the rent receipt referred to earlier. It was explained that since Manoj Aggarwal was a director of Bemco he had allowed the premises to be used by Bemco and the rent receipt for the period 1.4.1998 to 30.9.1998 (page 205 of the paperbook) confirmed this arrangement by mentioning the name of Manoj Aggarwal with the appendage “Dir. B.M. Jewellers Pvt. Limited”. It was submitted that even the rent receipt for January 1998 was similar. The learned representative for the assessee also pointed out that the Ahmedabad office and Kucha Mahajani office of Bemco were closed on 1.4.2001 and not on 1.4.2000 as appears to have been erroneously assumed by the income-tax authorities. It is, therefore, contended that at the time of the search, all the three offices of Bemco, namely, 7/22, Ansari Road, Darygaganj, 1182, Kucha Mahajani and Jai Sidhi Apartments, Ahmedabad were functioning. Our attention was drawn to the return of income filed by Bemco for the assessment year 1999-2000, a copy of which is at page 15 of the paperbook containing 133 pages and it was pointed out that in the return, the nature of the business of Bemco was shown as. “dealing in gold bullion, diamond and stones”. This was the first return filed by Bemco. It was accompanied by the computation of income and profit & loss account and balance sheet as on 31.3.1999, copies of which have been placed in pages 16 to 24 of the said paperbook. It is pointed out that in the balance sheet, closing stock has been shown at Rs. 1,98,38,161/-. As regards the existence of the branch office at Ahmedabad, Mr. Ved Jain submitted that records showing the existence of the same were seized during the search and this has been acknowledged even by the Assessing Officer in page 26 of the block assessment order in the case of Manoj Aggarwal where the Assessing Officer has referred to Annexure A-7 seized from 5A/12, Ansari Road and has mentioned that it is a letterhead of M/s. Bemco dated 4.4.1999 in which the branch transfer address of Ahmedabad is shown as the residence of Vijay Aggarwal. It was contended by Mr. Jain that when the seized records themselves show the existence of branch office of Bemco at Ahmedabad, it can never be doubted. Reliance was also placed on the letter written by the Assessing Officer to Manoj Aggarwal on 3.5.2002 (pages 78 to 100 of the assessee’s paperbook) and in particular our attention was drawn to pages 91 & 92 where the Assessing Officer has himself made reference to Annexure A-7 showing sale of diamonds from Ahmedabad branch for Rs. 1,92,10,224/- on 13.11.1999 and transfer of loose diamonds from Delhi to Ahmedabad in April 1999. It was submitted that in the light of the seized material, the existence of the Ahmedabad branch office of Bemco in the residence of Vijay Aggarwal has to be accepted as a fact.

51. Mr. Jain further contended that no question was asked from Manoj Aggarwal about Bemco and his connections with Bemco at any stage of the assessment proceedings. It was only on 20.8.2002, for the first time, that questions were asked about Bemco to which Manoj Aggarwal replied on 26.8.2002. A copy of the reply of Bemco is at page 201 of the assessee’s paperbook. In paragraph (C) of the letter, which is in reply to the show-cause notice issued by the Assessing Officer on 20.8.2002, a copy of which is at page 45 of the paperbook containing 133 pages, Bemco also asked for cross examining Ram Pehlwan and Omi Mama who were stated to have said that they were not aware of Bemco’s office in Kucha Mahajani. It is submitted that the assessments both of Manoj Aggarwal and Bemco were completed on 29.8.2002, within three days after both the assessees asked for cross-examination of Ram Pehlwan and Omi Mama and it was thus clear that the request for cross examination was not acceded to, which was in violation of the rules of natural justice. Similarly, it was also submitted that the request for cross examination of Girish Mittal was not accepted. Mr. Jain reiterated that in a block assessment, the evidence unearthed during the search alone can be relied upon and the assessment order cannot be strengthened or supplemented by reference to additional material unless such material had a link with the evidence unearthed.

52. Mr. S.D. Kapila, the learned special counsel for the income-tax department first raised a few general contentions in regard to the cases of both Manoj Agarwal and Bemco. He submitted as follows:

a) In the panchnamas placed from pages 1-28 of the paper book, there is no mention of any stock of jewellery found or seized during the search which is unusual in the case of persons who claim to have genuinely bought and sold jewellery.

b) In the statement given by Manoj Agarwal on 11-9-2000 (page 48 of the paper book), he has admitted to have given accommodation entries.

c) In the statement given by him on 14-12-2000 (pages 52,53 & 56 of the paper book), he has stated that all other accounts except Bemco and Bishan Chand Mukesh Kumar are accommodation entries, but he has not specifically excluded the payments to melters (of gold) from the accommodation entries/accounts which shows that even the payments to melters were only on account of accommodation. (Qn. No. 3 And answer to the same).

d) In the statement given by Manoj Agarwal on 8-1-2001/9-1-2001 (page 61 of the paperbook), the name of Sunil Kapoor is mentioned in the list of mediators.

e) In the statement given by him on 20-4-2001 (page 64 of the paper book @ 70), in answer to question No. 37, he has stated that the share transactions are mere accommodation entries and there is no reason why the jewellery transactions cannot also be treated the same way.

f) In the show-cause notice issued by the Assessing Officer on 3-5-2002 (page 78 @ 87 of the paper book there is reference to cash memos issued by Bemco on 31-3-1999 in favour of Kishan Lal Murari Aggarwal & Sons which were seized during the search-which were considered to be bogus by the Assessing Officer. The explanation given by the assessee (page 106 of the paper book) is evasive and unsatisfactory.

g) In the above show cause notice there is also reference to the statement of account of Sunil Kapoor found during the search which was asked to be explained by the assessee.

h) The statement of affairs filed by the assessee (page 110-114 of the paper book) before the Assessing Officer does not have much evidentiary value.

i) At pages 129 etc. upto page 147, there is a compilation of all the accounts controlled/operated by Manoj Agarwal in the course of the accommodation entry business and the same has been admitted by him. Though there are several bank accounts, strangely there is no bank account in Jaipur and Ahmedabad where sales of diamonds and jewellery have been claimed to have been made.

j) In the statement given before the Assessing Officer on 25.7.2002, which is at page 166 of the paper book, Manoj Agarwal admits that in the course of his accommodation entry business he was asked by a mediator to open an account in the name of Sunil Kapoor, who was a resident to Amritsar, and that he had telephonic contacts with him. When the statement of Sunil Kapoor in which he stated that he knew Manoj Agarwal very well was shown to him, Manoj Agarwal did not ask for any cross examination, but waited till 26-8-2002 to make a request, when the assessment was about to be barred by time (on 31-12-2002).

k) In the above statement, Manoj Agarwal’s denial of payment of any commission to Sunil Kapoor flies in the face of the document seized during the search showing payment of Rs. 78,013/- as commission to him.

l) In the statement given on 14-8-2002, Manoj Agarwal has admitted that he had no vouchers for the expenses claimed against the commission income for giving accommodation entries.

53. Coming now to the question of existence of a branch of Bemco in 1182, Kucha Mahajani, Chandni Chowk, Mr. Kapila pointed out to the statement of Bishan Chand Agarwal, father of Manoj Agarwal, in the assessment proceedings of the latter, on 16-8-2002 (page 176 of the paper book) that the showroom in Kucha Mahajani was opened on 1-4-2000, but the statement of affairs of Bemco at the relevant date did not show any furniture, safe for keeping jewellery etc. nor were any expenses for movement of the showroom to Kucha Mahajani were debited. Further, Ram Pehelwan and Omi Mama, who according to the assessee were aware of Bemco’s showroom in Kucha Mahajani, were the witnesses of the assessed and it was his duty to produce them; on the contrary, when they stated before the Assessing Officer that they were not aware of the showroom, the assessee asked for cross-examination which is contrary to all settled principles. All this pointed out to the existence of mere paper transactions even in respect of the jewellery just as in the case of the shares, according to Mr. Kapila. As regards the existence of a branch of Bemco in Ahmedabad in Jai Sidhi Apartments, Mr. Kapila drew our attention to the statement (Question Nos. 4-7 at page 177 of the paperbook) in which Manoj Agarwal has stated that the branch functioned from Vijay Agarwal’s premises and no rent was paid because Vijay Agarwal was a personal friend of Manoj Agarwal. Mr. Kapila contended that this was highly improbable. Further, in the second statement of Bishan Chand Agarwal given on 19-8-2002 (page 183 of the report) he gave very evasive and “totally shocking” replies vis-a-vis the auditors’ report that they were not given the inventory and were unable to comment on the method of valuation of the stock. With regard to the statement of Girish Mittal who said that the sale of jewellery to Bemco was bogus, Mr. Kapila pointed out that the assessee was given an opportunity to cross examine Mittal but it was not availed of, as mentioned in page 35 of the assessment order. In this connection, he relied on the judgment of the Full Bench of the Lahore High Cowl in Seth Gurmukh Singh and Anr. v. CIT, Punjab which was approved by the Supreme Court in Dhakeshwari Cotton Mills 26 ITR 775, where it was held that the assessee has to first explain the evidence found during the search and only thereafter can he ask for cross examination of the witnesses. He drew our attention to C. Vasantlal & Co v. CIT 45 ITR 206 in which it was held that the provisions of the Criminal Procedure Code cannot be bodily lifted into the income-tax proceedings and that the evidence collected by the Assessing Officer does not lose its relevance merely for lack of cross-examination. Reference was also made to the Supreme Court judgments in Pooran Mal 93 ITR 505 @ 526 and Surjeet Singh Chabda v. UOI to contend that the retraction of Sunil Kapoor two years after his original statement was useless as evidence and cannot be taken advantage of. Even on merits of the retraction, it was argued that there was no substance in the same and the allegation that he was forced to give the original statement (confession) against the assessee was baseless. Thus, according to Mr. Kapila. the retraction does not in any way diminish the evidentiary value of the original statement.

54. With particular reference to the case of Bemco, Mr. Kapila, the learned special counsel for the revenue, contended that it was only a corporate facade for the accommodation entry business which must be pierced and that the evidence showed that the financial control/management was with Manoj Agarwal, who was the director of Bemco. He contended that the share transactions and the jewellery transactions cannot be separated and when Manoj Agarwal has admitted that the share transactions were not genuine, the admission must be extended to the jewellery transactions also. He submitted that the return of Bemco for the assessment year 1999-2000 showed that its share capita] was only Rs. 3000 and that the job charges shown to have been paid was very low at 0.01% of the purchases. With such low job charges, it was not possible to buy and sell jewellery. The balance sheet did not show any fixed asset, not even furniture or a safe to keep the jewellery. The closing stock was shown at Rs. 1.98 crores and it was not proved where the same was being kept. There are no establishment expenses, no insurance cover. More significantly, the auditors had expressed serious reservations in their report and they have stated that no inventory was made available to them and they were therefore unable to comment on the valuation of the stock. Thus, says Mr. Kapila, the very existence of stock of jewellery worth Rs. 1.98 crores is under serious question. Commenting on the return for the assessment year 2000-01, Mr. Kapila contended that there was no explanation as to where the stock worth Rs. 4.97 crores was kept and the profit and loss account did not even show excise licence fee. The tax audit report also expressed grave reservations/qualifications about the accounts of Bemco. The auditors were not provided crucial details and therefore they “have thrown up their hands” and were unable to comment on the genuineness or authenticity of the accounts.

55. Supporting the assessment order passed by the Assessing Officer in the case of Manoj Agarwal to the hilt, Mr. Kapila, learned special counsel for the revenue, contended that the statement of Manoj that only the share transactions were bogus but the jewellery transactions were genuine should not be accepted as it would be against human probabilities and the normal course of human conduct. He pointed out that on the one hand it was claimed that 90% of the sales of jewellery are being made in Ahmedabad, whereas there was no bank account there to deposit the cash and the cash had to be brought to Delhi by train, which was unbelievable and against the ordinary course of human thinking and conduct. Referring to the affidavit of Vijay Kumar Agarwal (page 207 of the paper book) to the effect that his flat in Jai Sidhi apartments in Ahmedabad was being partly used for the business of Bemco, Mr. Kapila pointed out that though it was claimed that the affidavit was filed before the CIT(A) there was no reference in his order to the same nor was there any application before the CIT(A) under Rule 46A of the IT Rules or under Rule 29 of the ITAT Rules before the Tribunal for admission of the affidavit as fresh evidence. He submitted that the assessee did not ask for the cross-examination of the administrator of Jai Sidhi Apartments (Manoj Sudhir Shah) nor of any other person, except of Sunil Kapoor. He pointed out that Annexure 18 (of the seized material) which contained ledger accounts is of the same nature as Ann. 19 to 21 which are ledger accounts of mediators for providing accommodation entries. Mr. Kapila contended that the transactions in jewellery are sham transactions and colourable devices for evading lawful taxes due to the government. He drew our attention to the position in law after the judgment of the SC in Azadi Bachao Andolan 263 ITR 706 as explained in the order of the 5-member Special Bench in Wallfort Shares and Stockbrokers Limited v. ITO (2005) 96 ITD 1 (SB) at paragraph 132 @ 99.

56. We have carefully considered the facts and the rival submissions and also perused the exhaustive paperbooks field before us by both the sides. In the statement recorded on oath from Manoj Aggarwal on 3.8.2000, the date of the search, he has stated his background. A typed copy of the statement has been provided to us. Manoj Aggarwal has passed class 9 from Mathura High School, Kachi Sadak, Mathura, his father Bishan Chand Aggarwal was running a commission business in silver at Mathura. They were staying at Chowk Bazar, Mathura. About 5 to 6 years before the date of search, they shifted to Delhi and Bishan Chand Aggarwal started doing commission agency business as well as business in silver at Kucha Mahajani in Delhi. Around two years before the dale of search, Bishan Chand Aggarwal started two companies, namely, Bemco Jewellers Private Limited and Friends Portfolio Private Limited. The precise answer of Manoj Aggarwal to question No. 10 in this statement is as under:

Since two years he started these companies, namely, Bemco Jewellers and Friends Portfolio. In Bemco Jewellers we are doing trading in gold and silver and in Friends Portfolio we are doing share business as Friends Portfolio is member in Delhi Stock Exchange. As directors of these companies, 1 do not have any specific work. I enjoy life and whatever papers and cheques my father asks me to sign, I sign as an obedient son.

At the time of giving the statement, Manoj Aggarwal was aged about 28 years. There is no mention in this statement that the business in shares or gold and silver are only by way of accommodation entries.

57. The next statement given by Manoj Aggarwal before the Assessing Officer was under Section 131 of the Act on 11.9.2000. A copy of this statement is at pages 48 to 51 of the paperbook. In this statement, Manoj Aggarwal has explained the modus operandi involved in giving accommodation entries in respect of the share business conducted through Friends Portfolio. He has sought to explain several annexures, which are seized material. The annexures contained the names of the mediators through whom book entries were passed on to the real beneficiaries. Details were maintained for cash received from the mediators for issue of cheques or drafts in favour of the beneficiaries. The details also showed appropriation of the cash receipt. There were code names used to denote different mediators. Manoj Aggarwal also admitted in the aforesaid statement that he has taken profit cheques from several parties which were subsequently transferred to various beneficiaries by taking the cash from them and that cash was passed on to the parties through mediators. In all, there are eight parties. Manoj Aggarwal also gave the amounts involved in respect of each party and the name of the mediator. Through these eight parties, Manoj Aggarwal had given accommodation entries to several beneficiaries with the help of mediators. The parties involved are mainly private limited companies. The names of the mediators, 11 in member, have also been given in this statement. After giving the aforesaid details, Manoj Aggarwal summed up the factual position in the last paragraph of the statement as under:

It is further submitted that I have also taken profit of approximately Rs. 4.25 crores in the financial year 1999-2000 through mediator through Neeraj Gupta, (Member DSE). The same profit was further passed on to various beneficiaries by way of book entries. It is also submitted that I do not know as to what treatment was given by the beneficiaries in their respective books of account in regard to the cheques received from me. I was only concerned by giving cheques to them against cash received from them through beneficiaries. It is also submitted that no real transactions took place and all entries shown by him are the entries of only accommodation in nature passed by him in lieu of cash and commission on such transactions which ranged from 20 to 10 paise against Rs. 100/-.

It may be seen from the aforesaid statement that therein the assessee has narrated the modus operandi involved in giving accommodation entries in respect of only share transactions and there is no mention about any accommodation entries regarding jewellery. Though the names of several mediators and companies, which were involved in the modus operandi, have been mentioned in the statement, the name of Bemco jewellers Pvt. Limited was not one of them. The statement was thus limited only to the share transactions and in describing how the assessee was involved therein as the giver of accommodation entries.

58. We now turn to the assessee’s statement given on 14.12.2000 before the Assessing Officer under Section 131 of the Income-tax Act, under oath. The assessee was shown copies of bank account and statements along with account opening forms and specimen signatures forms of 55 entities and he was asked what he had to state in this regard. It is relevant to mention here that items 21, 36, 42 and 54 were the bank accounts of Bemco with different banks, such as, Vijaya Bank, SBI, Daryaganj Branch, SBI, Vijay Nagar Branch and Oriental Bank of Commerce, Bengali Market, Amritsar. Manoj Aggarwal answered that some of the accounts, such as, Sl. Nos. 14, 15, 18, 19, 28 and 30 did not belong to him but admitted that the rest of the accounts were “either directly or indirectly connected with him” or connected with Bishan Chand Mukesh Kumar. Thereafter, in question No. 3 he was asked to explain the transactions in the accounts except accounts, which did not belong to him, as stated above. The answer of Manoj Aggarwal is reproduced below:

I have also to submit that accounts as mentioned at Sl. Nos. 21, 36, 42 and 54 are also not related to transactions of accommodation entries. It is also further submitted that all other accounts as mentioned in the foregoing pages except as mentioned at Sl. Nos. 14, 15, 18, 19, 28, 30, 5, 32, 50, 21, 26, 42 and 54 are related to the transactions of accommodation entries. These accounts were either directly controlled/operated by me or on my directions. It is also submitted that these accounts were used only to route transactions which otherwise did not have any genuineness except for consideration of commission or transactions in these accounts.

The accounts at Sl. Nos. 21, 36, 42 and 54 are accounts of Bemco. The accounts at Sl. Nos. 5, 32 and 50 are the accounts of Bishan Chand Mukesh Kumar. What emerges from the answer of Manoj Aggarwal is that the transactions of Bemco and Bishan Chand Mukesh Kumar are not accommodation transactions but are genuine transactions. He is quite categorical in saying so as his reply would show. What has been admitted by him as accommodation transactions are the other accounts which have nothing to do with the purchase and sale of jewellery.

59. We now turn to the statement of Manoj Aggarwal given on 8.1.2001/9.1.2001. He was shown the bank statements of Friends Portfolio Private Limited and asked to explain the cheques issued from the aforesaid accounts. He gave these details. He was then asked to state the purpose for which the payments were made. Manoj Aggarwal answered that “these were the accommodation entry given to these parties against cash received from them”. Thereafter he was asked to explain the chain of people who were instrumental in arranging the transaction. A detailed reply was given by Manoj Aggarwal. It will be recalled that Manoj Aggarwal had stated earlier that Friends Portfolio Private Limited was a company belonging to him and his father through which share transactions were to be put through. In this statement dated 8.1.2001, there was no question put to Manoj Aggarwal regarding the nature of the jewellery business or about Bemco. All the questions were related to the share business conducted through Friends Portfolio and Manoj Aggarwal had no hesitation in again admitting that the share transactions were not genuine and they were mere accommodation entries given for commission.

60. In the same statement dated 8.1.2001 which continued on 9.1.2001 (pages 61 to 63) of the paperbook, Manoj Aggarwal was asked to explain the addresses of certain names which appeared in the seized record as mediators. The name of Sunil Kapoor is one of them. Manoj Aggarwal answered that these names were of the persons “who used to come to him for procuring accommodation book entries on behalf of other main mediators from time to time” and that “the transactions reflected in their names are in fact the transactions of main mediators”. He gave the names of main mediators and related them with the sub-mediators. Sunil Kapoor’s name was shown as attached to R.S. Bansal who was shown as the main mediator. Thereafter, question No. 9 and the answer thereto were as under:

In your seized record it is found that numerous persons are listed who seem to have done transactions of sale and purchase of shares, transactions of loans, transactions of gifts, transactions of cash, etc. Kindly explain these transactions.

Ans.: As I have stated in my statement elsewhere as already given to the income-tax department, I have not been transacting any real business but I only used to issue cheques from various bank accounts under my control, against the cash received from the persons who used to approach me through mediators. I did not know as to what treatment they gave to such cheques in. their books of account. I never entered into any real transactions and such transactions were only on paper. In regard to other persons who gave me cheques, mainly showing transfer of profit to my associate concern, used to take cash back from me as I have never done any share transactions through them in fact. And I used to pass on such profit in my books further to beneficiaries against cash receipts. They in turn probably used to show such cheque receipts in their accounts as profit received from me or proceeds of sale of shares through me, but in fact I never carried out any transactions of sale or purchase of shares.

(underlining ours).

He was thereafter asked as to whether any agreements were entered into with share-brokers or whether there was physical delivery of the shares to which he replied in the negative.

61. It may be seen from the aforesaid statement given on 8.1.2001/9.1.2001 that all the questions put to Manoj Aggarwal related only to Friends Portfolio Private Limited which was carrying on the business of giving accommodation entry for purchase and sale of shares. No questions were put to him regarding the bank accounts of Bemco to which there was a reference in the earlier statement, which was stated by Manoj Aggarwal to represent genuine entries and accommodation entries. The answers given by Manoj Aggarwal in the statement given on 8.1.2001/9.1.2001 also referred to the share transactions only. His admission that he never carried out any genuine transactions was confined to the share transactions. He had also admitted that there was no physical delivery of the shares. He had also stated in this statement that Sunil Kapoor was a sub-mediator attached to the main mediator – R.S. Bansal and in the context of the statement and the questions put to him it would appear that Sunil Kapoor acted as a sub-mediator for the accommodation entry business in connection with the share transactions carried out by Manoj Aggarwal.

62. Another statement was recorded from Manoj Aggarwal on 20.4.2001. About 52 questions were put to him. Most of the questions relate to the share transactions. There is hardly any significant question put to him which related to the jewellery business which Bemco was carrying on. There is only a reference in the assessee’s answer to question No. 18 to the effect that the books of account of Bemco were already seized during the search operation and again in answer to question No. 50, which refers to annexure A-18 seized during the search, that the same has already been explained in the statement given on 11.9.2000. A perusal of the statement given on 11.9.2000 shows that annexure 18 contains the names of mediators in respect of the accommodation entries given for the share transactions. Thus, in the statement given on 20.4.2001, there is nothing of significance relating to Bemco.

63. At page 74 of the paperbook filed by the assessee, there is a letter written by Manoj Aggarwal on 22.8.2000 to the Director of Income-tax (Investigation), New Delhi. It may be recalled that the search took place on 3.8.2000 and the above letter has been written within three weeks thereof. In this letter, the assessee has expressed a desire to come clean before the revenue authorities. He has further stated that on thoughtful consideration of the transactions entered into by him, he has “come to the conclusion that out of the total transactions under investigation, the transactions amounting to Rs. 100 crores approx. have been done by me on commission basis at various rates of commission ranging from 0.020% to 0.10% which means that I have given book entries against the cash/cheque receipt of approximately one hundred crores from various purpose”. He has further stated that if the copies of the seized records are given to him he will provide the details and other addresses to the revenue authorities. It will be seen that in this letter, Manoj Aggarwal has not admitted that all his transactions are bogus and have been entered into only for the purpose of giving accommodation entries but has stated that out of the total transactions under investigation, transactions amounting to one hundred crores approximately have been done on commission basis. It is significant to note from the block assessment order in the case of Manoj Aggarwal that the total of the share transactions comes to Rs. 132,32,77,001/-. The purchases of Bemco from incorporation till date of search came to Rs. 36,69,08,500/-. The transactions in shares have been admitted to be accommodation transactions by Manoj Aggarwal in his letter dated 22.8.2000. This letter no doubt does not categorically state that the share transactions are bogus but the transactions in jewellery are genuine but the purport and tenor of the letter clearly is that only a part of the transactions aggregating to Rs. 100 crores (approximate) has been done for commission. This implies that rest of the transactions are genuine. The share transactions aggregating to Rs. 132.32 crores have been admitted to be only accommodation entries. There is no such admission in the case of the jewellery transactions of Bemco. The figure of Rs. 100 crores is not an accurate figure of the share transactions and Manoj Aggarwal has advisedly stated it to be an approximate figure only. The reason is not far to seek. It must be remembered that the letter was being written within three weeks of the date of search. Manoj. Aggarwal did not have the copies of the seized documents with him at that time. He could therefore only venture an approximate figure of the share transactions which, according to him, were mere accommodation transactions. It was only after the seized material was examined and sorted out that it transpired that the aggregate of the share transactions came to Rs. 132,32,77,001/-. The fact however remains that at the earliest opportunity Manoj Aggarwal had admitted that the share transactions were only accommodation transactions. He has made no such admission in respect of the jewellery transaction. We have already referred to this aspect while dealing with the statement of Manoj Aggarwal given on 14.12.2000. Taking ail these into account, it appears to us that when on 22.3.2000, the assessee admitted before the income-tax authorities that the share transactions amounting approximately to Rs. 100 crores. are not genuine, by implication and as a necessary corollary it means that it was the assessee’s case that the transactions of Bemco in jewellery were genuine.

64. We have referred to the above facts and the averments made by Manoj Aggarwal in the various statements and letters filed before the income-tax authorities to highlight the position that there was no admission by him that the transactions of Bemco were not genuine. It may be recalled that it was one of the arguments of the learned special counsel for the department that it is not believable that only the share transactions were accommodation entries and the jewellery transactions were not. The learned representative for the assessee in the course of his arguments did contend that Manoj Aggarwal never admitted that the transactions of Bemco were accommodation transactions and that his admission was confined to the share transactions. It seems to us that the contention is not without force and is supported by the conduct of Manoj Aggarwal and the various statements given by him before the Assessing Officer as also by the fact that no questions of significance were put to him by the Assessing Officer, while recording the statements from Manoj Aggarwal, relating to the jewellery business of Bemco or the modus operandi adopted by the said entity while carrying on the jewellery business. There is also no reference to any material seized during the search, relating to Bemco which required the explanation of the assessee. In these circumstances, it appears to us that the statement of Manoj Aggarwal that he gave accommodation entries only for the share transactions and not for the transactions of Bemco in jewellery has a ring of truth. He was also consistent in saying so and did not shift stands. It is also significant to note that he admitted the transactions in shares of the value of Rs. 132.32 crores as accommodation transactions in which he earned only commission, as compared to the jewellery transactions which amounted only to Rs. 36.69 crores, which, according to him, were genuine transactions. In other words, it is of some relevance to note that transactions of a much higher value were admitted by him as accommodation transactions. It is further relevant to note from his statement given on the day of search (3.8.2000) that Manoj Aggarwal had no experience in carrying on any business, whether it be shares or jewellery. His father Bishan Chand Aggarwal was carrying on commission business in silver at Mathura which he continued after he came to Delhi, at Kucha Mahajani. Two years prior to the search, he started Bemco and Friends Portfolio. Manoj Aggarwal had also stated that he used to sign the papers and cheques given by his father without question. From the statements given by him before the income-tax authorities, it is however seen that so far as the share transactions are concerned, which were carried out through Friends Portfolio he was very much aware of the modus operandi relating to the accommodation entries and had elaborately described with facts and figures the various steps involved. Though he had no background in share business he seems to have acquired knowledge about the intricacies of the same and had acquired sufficient mastery over the transactions to indulge in giving accommodation entries. So far as the jewellery business is concerned his father had considerable experience. There is apparently no reason why such experience would not have been used for conducting a genuine jewellery business in Delhi in the name of Bemco. All these facts and circumstances taken together render the probability of the assessee having carried on a genuine jewellery business that much stronger.

65. We now turn to the points made in the block assessment order as well as by the learned special counsel for the department before us. The first point is that there was no showroom of Bemco at 1182, Kucha Mahajani, Chandni Chowk. The Assessing Officer also observed that in the records of the sales tax department, the only premises shown is 7/22, Ansari Road, Daryaganj. He has also noted that the inspector of income-tax had reported, after a visit to the premises that there was no shop in the name of Bemco in the building. He has also reported that the local enquiries revealed that no one knew the existence of the sales office of Bemco the premises at any point of time. These facts were confronted by the Assessing Officer to Bishan Chand Aggarwal who was one of the directors of Bemco. In his statement dated 16.8.2002, he asserted that Manoj Aggarwal this son and the other director of Bemco) had taken the premises on rent in his name in the financial year 1998-99 on a monthly rent of Rs. 100/- from a trust. The Assessing Officer pointed out that no rent payment has been shown in the profit and loss account of Bemco for the year ended 31.3.2000. Bishan Chand Aggarwal replied that since the premises were taken on rent in the personal name of Manoj Aggarwal, the rent was not debited in the accounts of Bemco and that Manoj Aggarwal did not charge any rent from Bemco. At this juncture, the report of the income-tax inspector was show to Bishan Chand Aggarwal and he was asked to explain the same. Bishan Chand Aggarwal stated that the room taken on rent was in the upper ground floor of the building and it measured 20 feet x 10 feet. He confirmed that the shop still existed but was locked and explained that since the business of Bemco had been closed down there was no signboard. The Assessing Officer asked Bishan Chand Aggarwal to mention the names and addresses of persons having shops in the neighbourhood who can testify that Bemco had a shop in 1182, Kucha Mahajani. Bishan Chand Aggarwal mentioned the names of Ram Pehalwan and Omi Mama who were running dalali business in the same building. He however made it clear that he was not aware in what name they were conducting their business and further that he did not know their residential address and hence it was not possible for him to ensure their presence for personal deposition. The Assessing Officer issued summons to these persons who gave statements denying any sales office of Bemco ever existed in the premises. This denial statement was brought to the notice of Bishan Chand Aggarwal on 19.8.2002. He stated that since Bemco was closed for the last two years these persons may not be Knowing Bemco’s name but may be knowing him personally. He also expressed his inability to produce them before the Assessing Officer.

66. On the basis of the above, the Assessing Officer issued a show cause notice on 20.8.2002 in which these points were put to Bemco for rebuttal. A similar show cause notice was also issued to Manoj Aggarwal. Bemco replied by letter dated 26.8.2002 stating that the Kucha Manajani office was opened in April 2000 and purchases of Rs. 40.40 lacs were made from Chandni Chowk out of the total purchases of Rs. 36.69 crores, that it had applied for the addition of the sales office in the registration certificate issued by the sales-tax authorities at Delhi and since the original registration certificate had been seized by the income-tax authorities on 3.8.2000, the necessary rectification could not be made in the same, that generally in Kucha Mahajani the shop owners know each other only by their individual names and not by the names of the companies run by them and, therefore, this could be the reason why Ram Pehlwan and Omi Mama could not readily confirm the existence of Bemco’s shop in the building and from this no adverse inference could be drawn. It was also requested that Bemco should be provided an opportunity to cross examine Ram Pehlwan and Omi Mama if their statements are used against it.

67. On a careful consideration of the entire material on record and the rival arguments, we are inclined to accept that the possibility of Bemco having a shop/sales office at 1182, Kucha Mahajani is strong. It is a fact that the sales-tax registration certificate of Bemco as originally issued did not have the address of 1182, Kucha Mahajani. According to Manoj Aggarwal and Bemco, the premises were taken on rent even in 1998 for doing silver business of Bishan Chand Aggarwal. There are rent receipts at pages 205 & 206 of the assessee’s paperbook showing payment of rent for the month of January 1998 and for the months of April to September 1998. These receipts are in the name of Manoj Aggarwal but this has been explained by Bishan Chand Aggarwal in his statement dated 16.8.2002 by saying that since he (Manoj Aggarwal) was a director of Bemco and had taken the premises in his personal name, he did not charge any rent from Bemco. The authenticity of the rent receipts has not been doubted. At page 71 of the paperbook containing 133 pages is the report of the sales-tax inspector dated 31.8.2000. The report narrates that as desired the sales-tax inspector visited Bemco’s business premises at 7/22, Ansari Road, Daryaganj, where Bishan Chand Aggarwal was present. Bishan Chand Aggarwal at that time intimated in writing to the sales-tax inspector that Bemco had taken additional place as its sales-office in No. 1182, Kucha Mahajani on a rent of Rs. 105/- per month and that the said property belonged to a temple. A copy of the rent receipt, no objection certificate and the resolution of Bemco were given by Bishan Chand Aggarwal and they were enclosed to the report of the sales-tax inspector. The inspector’s report further states that Bishan Chand Aggarwal sent his younger son Deepak Aggarwal along with the inspector to show the sales office at Kucha Mahajani and he found that Manoj Aggarwal (the other director of Bemco) was functioning there. The sales-tax inspector accordingly confirmed the additional place of business and recommended that the application of Bemco for amendment of the registration certificate may be considered accordingly. Attached to the sales-tax inspector’s report are the statement of Bemco confirming the taking up of the sales office, authorisation given to Bishan Chand Aggarwal to make the amendment application to the sales-tax department, copy of the application for amendment dated 22.8.2000 and a copy of the letter dated 17.8.2000 confirming that a sales office had been taken at 1182, Kucha Mahajani from 1.4.2000. These are all placed at pages 72 to 79 of the paperbook containing 133 pages.

68. From the above facts, it appears to us that there was a sales office of Bemco at 1182, Kucha Mahajani, Chandni Chowk, Delhi. The report of the sales-tax inspector who has made a personal visit to the premises in August 2000 and found Manoj Aggarwal functioning from there cannot be ignored because it is a report of a functionary of the Delhi state government. The rent receipts, as already observed, have not been doubted. The income-tax inspector apparently went to the premises sometime in the year 2002 by which time Bemco had closed the business in the premises. It was, therefore, not surprising that he could not find Bemco’s shop in the premises. However, in his statement dated 16.8.2002, Bishan Chand Aggarwal, when confronted with the inspector’s report, reiterated that the shop was still existing but was locked at present and there was no board since the business had been closed down. The Assessing Officer did not verify the assertion of Bishan Chand Agarwal, which he could have, at least in an attempt to prove the claim to be wrong. The claim of Bishan Chand Aggarwal that Ram Pehlwan and Omi Mama may not know the name of Bemco but may confirm that Bishan Chand Aggarwal was carrying on business from Kucha Mahajani because in this area the names in which the trade was carried on were not familiar or important, but what was familiar was only the persons behind the name boards accords with the practical business aspects and is also confirmed by Bishan Chand Aggarwal’s own statement, in answer to question No. 7 in the statement dated 16.8.2002 that though he knew these two persons as dalals carrying on business in 1182, Kucha Mahajani, he was not aware of the name of the firm in which these persons were conducting business. The statement of Bishan Chand Aagarwal does not appear to us to be unusual or strange having regard to the general practice in the business of unorganized sectors where it is the name of the person behind the business that is familiar and known and the name-board or style under which the business is conducted is not well-known or familiar and is not considered very important. Be that as it may, when Ram Pehlwan and Omi Mama gave statements denying that a sales office of Bemco existed at 1182, Kucha Mahajani, they became the witnesses of the department and at that juncture it was incumbent upon the Assessing Officer to accept the request of Bemco for cross examination of these persons. The Assessing Officer issued a show cause notice the very next day i.e. 20.8.2002 and the assessee did not lose time in asking for the cross examination in its letter dated 26.8.2002. Within three days the Assessing Officer completed the assessment, knowing fully well that Bishan Chand Aggarwal had not only asked for cross examination but had also stated on 19.8.2002 that he cannot produce these two persons as his witness. It cannot therefore be stated that the department has conclusively established that Bemco did not have a sales office at 1182, Kucha Mahajani. On the other hand, the preponderance of the evidence points towards the strong possibility of existence of the sales office as claimed.

69. The next important point made was that Bemco’s claim that it had a branch office at B-108, Jai Sidhi Apartments, Ahmedabad was not true and that no such office ever existed. It may be recalled that Bemco had claimed that during the financial year 1999-2000 it had made sales of gold bars from Ahmedabad to the tune of Rs. 24,07,30,000/- out of the total sales of Rs. 26,07,63,735/-. In order to verify the same, the DDIT, Ahmedabad was asked to conduct an enquiry and report the same to Assessing Officer. The DDIT, Ahmedabad found the apartment locked and the resident one Vijay Aggarwal was not traceable. He reported that local enquiries revealed that no business was conducted from the premises. The flat was found to be of only 70 sq.yds. and was of low income group. He was however able to examine and take a statement from Manoj Sudhir Shah who was the builder or developer of the property and also the administrator. This statement was also recorded on 19.8.2002. Manoj Shah said that he was not aware of any business being carried on from the apartment and that Vijay Aggarwal was residing therein with his wife and two children and no other person was residing there. Vijay Aggarwal was dealing in textile business and Anita Aggarwal was a housewife. Manoj Shah flatly denied that the flat was used for the gold business and stated that no board of Bemco was put up outside the flat. He also asserted that the Hat was used only for residential purposes and he did not find any customer visiting the flat. When his statement was put to Bemco, it was stated that Manoj Shah was not residing in the apartment complex and, therefore, could have had no knowledge of the day-to-day activities in the flats in Jai Sidhi Apartments. It seems to us that there is considerable force in the argument of the assessee because Manoj Shah being only the administrator of the society, residing at 20, Ridhishwar Society, Nava Vadaj Road, Ahmedabad would have been in no position to inform the income-tax department about the day-to-day activities of Jai Sidhi Apartments or Vijay Aggarwal’s apartment in particular. He merely knew who were residing in the flat and what Vijay Aggarwal was doing for a living but it cannot be expected that he would know any thing about the storage of sales of the gold bars in the apartment. It has been stated by Bemco before the Assessing Officer that no rent was paid to Vijay Aggarwal for use of his flat to store and sell the gold bars since he was a friend of Manoj Aggarwal. Vijay Aggarwal could not be traced. He would have been in a better position to state the correct facts. It would be somewhat unsafe to rely solely on the statement of Manoj Sudhir Shah to reject the assesses’s claim. More importantly there is reference in the assessment order to page 7 of annexure A-7 seized from 5A/12, Ansari Road, Daryaganj which is a letterhead of Bemco dated 4.4.1999 where the branch address of Ahmedabad is shown as the residence of Vijay Aggarwal. Thus, the seized material itself contains evidence to show that Bemco had a branch at Ahmedabad in the residence of Vijay Aggarwal. When the seized material itself contains such evidence, it is difficult to brush aside the same and prefer to be guided by the statement of the administrator of the apartment complex who is not expected to know each and every detail about the activities carried on by a resident from his flat.

70. The income-tax authorities have also relied on the statement of Arvind Kumar Thakar, sales-tax consultant at Ahmedabad. It is their case that Thakar had not seen the books of account. We have gone through his statement, a copy of which is at pages 96 to 98 of the paperbook containing 133 pages. He confirmed that Bemco was his client fox sales-tax purposes in Ahmedabad and that they were trading in all kinds of jewellery. He confirmed his familiarity and interactions with Bishan Chand Aggarwal and Manoj Aggarwal. Me stated that Bemco had filed sales-tax returns for the financial years 1999-2000 and 2000-2001 and that these returns were signed by Vijay Aggarwal. He stated that he got the figures of sales and purchases from the main person of Bemco. Me also confirmed that he met Vijay Aggarwal at the time of obtaining sales-tax number in Gujarat and that his address was given as the branch address of Bemco. Me admitted that he did not verify the figure of sales from the books of account of Bemco, but confirmed that the figures of sales and exempted sales were included in the sales-tax returns on the basis of certificates given by Bemco. Me also stated that he did not remember any occasion where he had seen the books of account but admitted that if any of his staff members had seen them, he would not know about it. We are unable to appreciate how the statement of Arvind Thakar, the sales-tax consultant contains anything to belie the claim of Bemco that it had a branch office at Jai Sidhi Apartments, Ahmedabad. On the contrary, he has confirmed that the branch address given in the sales-tax return was that of Vijay Aggarwal. He may not have seen the books of account but that docs not mean that the books of account of Bemco never existed. He has stated that he prepared sales-tax return on the basis of certified figures of purchases and sales. His statement is supported by the sales-tax assessment order for the Ahmedabad branch of Bemco under the Gujarat Sales-tax Act, a copy of which is placed at pages 84 to 95 of the paperbook containing 133 pages. In this assessment order, the total sales and exempted sales have been shown at Rs. 24,09,30,000/- and Rs. 24,09,30,000 respectively. It appears that the entire sales was claimed to be exempted sales and that the said claim has been accepted. In the light of the sales-tax assessment order, it cannot be disputed that Bemco had effected sales of gold bars in Ahmedabad from B-108, Jai Sidhi Apartments.

71. The Assessing Officer has raised doubts about the carrying of the gold bars to Ahmedabad from Delhi for being sold there. It may prima facie appear to be somewhat unusual for Manoj Aggarwal to carry the gold bars with him from Delhi to Ahmedabad and to bring the sales proceeds in cash from Ahmedabad to Delhi all by himself and by undertaking journeys by train. However, Bishan Chand Aggarwal in his statement dated 16.8.2002 has explained this by saying that most of the times the journey had to be undertaken at short notice and therefore, Manoj Aggarwal travelled by unreserved class. When asked to produce the tickets, he has stated that they were collected by the railway authorities while exiting the railway station and, therefore, could not be produced. This practice which is prevalent in the railway stations is well-known and cannot be contradicted. So far as the journeys are concerned it does appear somewhat unusual that gold bars of such high value were carried in person by Manoj Aggarwal from Delhi to Ahmedabad and the cash was also brought by him by train from Ahmedabad to Delhi but in the absence of any strong evidence in the possession of the department to contradict the claim, it is difficult to reject it merely because it appears somewhat unusual. The Assessing Officer has himself noted that Bemco has shown travelling expenses of Rs. 3,74,440/- during the financial year 1999-2000 which includes expenses of 73 visits to Ahmedabad and back by Manoj Aggarwal. The only vouchers available for the expenses were the travelling allowance bills which are in form TR-25 which is normally used by Government servants to submit their claims for travelling allowance. No tickets were produced by Bemco but this has been explained by saying that they were collected by the railway authorities at the exit gate. The Assessing Officer has noticed that the ticket expenses claimed were for first class or AC-2Tier and has observed that nobody can travel in these compartments without reservation. Bishan Chand Aggarwal has however stated before the Assessing Officer that most of the times the journeys had to be undertaken at short notice and hence the travel was by unreserved class. The journeys were actually undertaken by Manoj Aggarwal and therefore, he would have been in a better position to explain how he travelled in the trains – whether in reserved accommodation or unreserved accommodation. The answer given by Bishan Chand Aggarwal has to be therefore looked upon only as his surmise as it contradicts the expenses claimed in the books of account of Bemco. We were not referred to any statement given by Manoj Aggarwal in which he was asked to clarify the position as to how and in what class he travelled between Delhi and Ahmedabad. In these circumstances, the minor contradictions in the statement of Bishan Chand Aggarwal cannot override the substance of the claim of Bemco that the gold bars and the sale proceeds in cash were transported between Delhi and Ahmedabad by Manoj Aggarwal by train.

72. Some of the questions put to Bishan Chand Aggarwal (questions 35 to 37) in the statement dated 16.8.2002 were regarding the transfer of cash, being sale proceeds from Ahmedabad to Delhi. The Assessing Officer does not appear to have thought it unusual that Bemco did not have a bank account in Ahmedabad. He, therefore, asked Bishan Chand Aggarwal only to clarify how the cash was brought to Delhi and deposited in the bank account. The reply of Bishan Chand Aggarwal was that the sale proceeds were also carried by Manoj Aggarwal by train from Ahmedabad to Delhi and they were deposited in the bank accounts in Delhi within a week from the date of return from Ahmedabad. To a question as to why the sale proceeds were not deposited immediately and in totality after returning from Ahmedabad, he replied that the bank authorities were refusing to accept huge cash deposits at one time. What was sought to be highlighted before us by Mr. Kapila, the learned special counsel was that Bemco did not have a bank account in Ahmedabad though it had a sales office there and had effected huge sales of Rs. 27.93 lacs during one financial year, which was quite unusual. Having a bank account in Ahmedabad would have been certainly prudent and would have obviated the need to carry the cash from Ahmedabad to Delhi, which was a risky affair, and it does appear to us unusual that there was no bank account in Ahmedabad but for that reason alone the other evidence on record cannot be ignored. There is evidence to show that the assessee effected sales in Ahmedabad as is clear from the sales-tax assessment order passed under the Gujarat Sales-tax Act, the seized letterhead of Bemco which showed Jai Sidhi Apartments as the branch office of Bemco in Ahmedabad and the statement of Arvind Thakar, the sales-tax consultant. In the light of these evidence, we are inclined to accept Bemco’s claim that the sales claimed to have been made from Ahmedabad branch office were real and not bogus.

73. We may now turn to the question whether there is material to hold that the books of account produced by Bemco before the Assessing Officer were bogus or were reliable. The Assessing Officer has placed reliance on (i) the fact that they were not found during the search; (ii) that they were supported only by computer-generated sheets showing cash sales without the addresses of the parties to whom sales were made; (iii) the bills appeared to be freshly prepared; (iv) that no stock register was maintained/produced and (v) the auditor’s report filed along with the return for the assessment year 2000-01 mentioned that the inventory was not produced for the perusal of the auditors, that the purchases were supported only by Bemco’s invoices and hence cannot be verified and that there was no documentary evidence made available to them for transfer of goods from Delhi to Ahmedabad and transfer of cash from Ahmedabad to Delhi. Out of these, the most important objection to the books of account is the one based on the audit report a copy of which is at pages 238-9 of the paper book tiled by the assessee. The auditors have stated that in their opinion proper books of account as required by the law have been kept by the company so far as appears from their examination of such books and that the balance sheet and profit and loss account are in agreement with the books of account. The qualifications, subject to which the report has been given, are: (a) that personal accounts of the parties, including squared up accounts, are subject to reconciliation; (b) no information regarding quantity of goods dealt with were given; (c) most of the purchases are supported only by purchase invoices issued by Bemco without the signature of the seller and therefore no opinion about the genuineness thereof can be expressed; (d) no documentary evidence is available for transfer of goods from Delhi to Ahmedabad and cash from Ahmedabad to Delhi. In the annexure to the audit report, the following opinions have inter alia been expressed: (a) the stock records were not made available and hence the auditors have relied on the certificate issued by the management to the effect that the stock valuation has been done on the basis of accounting policies; and (b) the internal control measures, though adequate, can be further strengthened. So far as the documentary evidence for the transfer of goods and the cash is concerned, we have already held that there was nothing serious against the claim of the Bemco. As regards stock register or records which were not made available to the Assessing Officer or the auditor, Bishan Chand Agarwal has stated on 19-8-2002 that they were ready but due to shortage of time the auditors may not have checked them. This is not acceptable. If they were ready, there was no reason why the auditors would not have checked them. Further, at least before the Assessing Officer the same could have been produced. The same position holds good in the case of inventory records also. As regards the other objection against the purchase invoices, Bishan Chand Agarwal has explained that since Bemco was purchasing old jewellery from different parties who were not having any printed sale bills, it was forced to issue its own purchase invoice and that the signatures of the sellers were not insisted upon. He has also stated that the sellers did not sign the invoices because of the goodwill enjoyed by Bemco. Though we are unable to appreciate this part of the explanation and what the reputation and goodwill of Bemco have to do with the signatures of the sellers, it appears to us that the substance of the explanation is that since those who sell old jewellery are mostly house-holders and individuals and ladies who are not in the business of selling such jewellery they did not have any printed sale bills and that was the reason why Bemco had to use its purchase invoices to maintain some sort of record for its purchases. It seems to us that this is an acceptable explanation, considering the fact that most of those who sell old jewellery are house-holders and individuals and ladies who may have a need to sell them. They are not persons who are in the business of selling or buying old jewellery and it is generally not expected of them to have printed sale bills. In such a case, it is not unusual for the purchaser, who is in the business of buying old jewellery, to record the transaction in his purchase invoice and issue the same to the seller and retain a copy for his record. Apparently this is what Bemco has done. The evidence, under the circumstances, cannot be impeached merely because of the absence of the signature of the seller. The auditors have only expressed their inability to confirm the genuineness of the purchase transactions; this is different from saying that the evidence is not genuine.

74. The books of account of Bemco were not found during the search but it is the case of Bemco, as seen from the statement of Bishan Chand Aggarwal recorded on 16.8.2002 that the books of Ahmedabad operations were kept at the branch office at Ahmedabad and the books of the Delhi office were kept in 1182, Kucha Mahajani where a computer had also been shifted for the purpose of writing the accounts. He has also stated that the computer operator by name Ramesh Chand used to visit Kucha Mahajani for writing the books of account. The Assessing Officer has also referred in the assessment order to certain notings made in the papers sent through fax to the sales-tax consultant in Ahmedabad. It is the case of the Assessing Officer that the paper and the changes made in the figure of sales noted therein show that no books of account were actually maintained at Ahmedabad. Bishan Chand Aggarwal has explained that this paper was prepared for the purpose of filing sales-tax return in Delhi. There were also certain other papers showing certain discrepancies in the branch transfer of Rs. 2,12,250/- in the letterhead of Bemco signed by Bishan Chand Aggarwal. When these discrepancies were pointed out he stated that the papers represented rough notings and were not related to books of account.

75. All the above facts do throw considerable doubt on the way in which the books of account and records were maintained by Bemco both in Delhi and in Ahmedabad. However, a balance-sheet and profit and loss account were prepared by Bemco and they were also filed along with the returns of income. They were also audited by the statutory auditors who have confirmed that in their opinion, proper books of account as required by law have been kept by the company so far as it appears from their examination of the books and that the profit and loss account and balance-sheet are in agreement with the books of account. Having regard to the audit report, it seems to us that Bemco did maintain books of account at Delhi and Ahmedabad. However, as per the audit report, no basis was given for the stock valuation and the inventory records were not made available to the auditors with the result that they were unable to express any opinion on the correctness of the stock valuation which was certified by the management. Maintenance of books of account is one thing and the reliability of those books for purposes of income-tax assessment is another. The auditor’s certificate does not say that the books of account are bogus or have been falsified. It only says that the stock valuation and the purchase invoices are not properly supported. We have already noted that the auditors have only refrained from expressing any opinion about the genuineness of the stock valuation and the purchase invoices; they have not said that there was no stock or that the valuation as certified by the management was contrary to the principles of accounting or known methods of valuation of stock or that the purchase invoices were not authentic or genuine. These have to be judged independently. In fact, it is pertinent to note that in the annexure to the audit report for the year ended 31.3.1999 the statutory auditors have observed that though no stock records were made available to them for verification, “The management conducted physical verification covering finished goods at reasonable intervals but in the absence of stock records we are not in a position to determine the discrepancy if any”. This seems to suggest that there were periodical checks being conducted by Bemco to verify the stock. In the ultimate analysis what one can infer at best is that the stock valuation may have to be made on different principles which are also acceptable under accounting principles and that the genuineness or authenticity of the purchase-invoices have to be independently verified. The auditor’s report, in our humble opinion, merely qualifies the accounts maintained by Bemco; it does not impeach their signatures of the sellers, it appears to us that the substance of the explanation is that since those who sell old jewellery are mostly house-holders and individuals and ladies who are not in the business of selling such jewellery they did not have any printed sale bills and that was the reason why Bemco had to use its purchase invoices to maintain some sort of record for its purchases. It seems to us that this is. an acceptable explanation, considering the fact that most of those who sell old jewellery are house-holders and individuals and ladies who may have a need to sell them. They are not persons who are in the business of selling or buying old jewellery and it is generally not expected of them to have printed sale bills. In such a case, it is not unusual for the purchaser, who is in the business of buying old jewellery, to record the transaction in his purchase invoice and issue the same to the seller and retain a copy for his record. Apparently this is what Bemco has done. The evidence, under the circumstances, cannot be impeached merely because of the absence of the signature of the seller. The auditors have only expressed their inability to confirm the genuineness of the purchase transactions; this is different from saying that the evidence is not genuine.

The books of account of Bemco were not found during the search but it is the case of Bemco, as seen from the statement of Bishan Chand Aggarwal recorded on 16.8.2002 that the books of Ahmedabad operations were kept at the branch office at Ahmedabad and the books of the Delhi office were kept in 1182, Kucha Mahajani where a computer had also been shifted for the purpose of writing the accounts. He has also stated that the computer operator by name Ramesh Chand used to visit Kucha Mahajani for writing the books of account. The Assessing Officer has also referred in the assessment order to certain notings made in the papers sent through fax to the sales-tax consultant in Ahmedabad. It is the case of the Assessing Officer that the paper and the changes made in the figure of sales noted therein show that no books of account were actually maintained at Ahmedabad. Bishan Chand Aggarwal has explained that this paper was prepared for the purpose of filing sales-tax return in Delhi. There were also certain other papers showing certain discrepancies in the branch transfer of Rs. 2,12,250/- in the letterhead of Bemco signed by Bishan Chand Aggarwal. When these discrepancies were pointed out he stated that the papers represented rough notings and were not related to 17.6.2002 issued by the Assessing Officer to Manoj Aggarwal, a copy of which is at pages 148 to 151 of the paperbook filed by the assessee. In this letter, paragraphs 21 & 22 are as under:

Party No. M-5 Annexure A-1

21. In reply to the question regarding this annexure you have stated that these are statements of various mediators. Please identify the accommodation entries in these transactions.

Annexure A-7

22. This annexure contains pages 1 to 155 which relates to M/s Bemco Jewellers (P) Ltd. This annexure indicates several cash transactions, transfer transactions and details of sales, cash deposits etc. In reply to this question you have stated that this annexure belongs to Bemco Jewellers and are self explanatory. Please explain each transaction with reference to the books of accounts were the same have been reflected.

The assessee’s para-wise reply is at pages 152 to 154 of the paperbook and the replies to paragraphs 21 & 22 are as under:

21. All the transactions pertaining to Friends Portfolio Pvt. Ltd. may be treated as pertaining to accommodation entries.

22. These transactions have been duly reflected in the books of accounts of Bemco Jewellers Pvt. Ltd.

These replies clearly indicate that what the assessee admitted as accommodation entries were only the share transactions put through Friends Portfolio Pvt. Ltd. and the answer to para 22 shows that the transactions referred to in the seized material have been duly reflected in the books of account of Bemco, which means that these are genuine transactions. These replies given by the assessee further strengthen the inference that it was only the share transactions which were accommodation transactions and that the same cannot be said to be true in respect of the jewellery transactions carried on by Bemco. In the assessment order of Manoj Aggarwal, at page 33, the Assessing Officer has referred to six items of the seized material which, according to the Assessing Officer, shows that Bemco was carrying on only accommodation business and that this fact has also been accepted by Manoj Aggarwal to be so. A perusal of the letter dated 3.5.2002 genuineness. It is also a fact that the premises at No. 1182, Kucha Mahajani and B-108, Jai Sidhi Apartments, Ahmedabad were not put to search under Section 132 of the Act and it is the case of Bemco that its books were kept in these premises. The books of account of a company should normally be kept at its registered office which in the case of Bemco is 7/22, Ansari Road, Daryaganj, Delhi. However, all the purchases of old jewellery are being made in Kucha Mahajani and 90% of the sales of gold bars, after the old jewellery is melted, is effected at Ahmedabad. The claim of the Bemco that the books of account were kept in the places were the purchases and sales were effected docs not appear to be unreasonable and at any rate there is no inherent improbability in the same which can justify its rejection. It cannot, therefore, be asserted with certainty or be taken as an established fact that the books of account maintained by Bemco and produced before the Assessing Officer were bogus. The auditor’s report for the year ended 31 3 1999 is dated 29.1.2000. Their report for the year aided 31.3.2000 is dated 24.7.2000. In these reports, as already noted, they have opined that proper books of account as required by law have been kept so far as it appears from an examination of such books and that the profit and loss account and balance-sheet are in agreement with the books of account. Nor can it be held that Bemco never maintained any books of account and that they were prepared subsequently for the purpose of assessment proceedings as has been held by the Assessing Officer.

76. We now take up the question whether any evidence was found in the seized material showing that Bemco gave only accommodation entries and that there were no genuine purchases and sales. The Assessing Officer has referred to annexure A-18 seized from 5A/12, Ansari Road, Daryaganj, New Delhi and has observed that Manoj Aggarwal has admitted that all the entries in the annexure related to the business of providing accommodation entries. This appears to be contrary to the statement given by Manoj Aggarwal on 14.12.2000 to which we have already made detailed reference in the earlier part of our order. In this statement, he was quite categorical in saying that the bank accounts of Bemco did not represent accommodation entries. We have also seen that Annexure 18 contains entries mostly relating to the share transactions which Manoj Aggarwal had no doubt admitted to be not genuine. This annexure did not contain anything relating business of Bemco. We may also refer to the letter dated Assessing Officer in page 33 of the assessment order do not appear to have been specifically put to Bemco or Manoj Aggarwal and all that the Assessing Officer has stated is that these papers have been accepted by Manoj Aggarwal to be related to his business of accommodation entries but we have earlier found that the admission of Manoj Aggarwal was restricted to the share business but did not extend to the jewellery business of Bemco. At the cost of repetition, we may refer to the answer of Manoj Aggarwal to question No. 3 in the statement recorded by him on 14.12.2000 where he has stated that the entries in the bank account of Bemco do not represent accommodation entries but are genuine transactions. The commission payment of Rs. 78,013/- to Sunil Kapoor stated to be mentioned in page 29 of annexure A-7 seized from 5A/12, Ansari Road, Daryaganj, appears to represent commission payment in respect of the share transactions which were admittedly accommodation transactions as Sunil Kapoor has been stated by Manoj Aggarwal to be a sub-mediator attached to R.S. Bansal, one of the main mediators in respect of the share transactions and this has been clearly stated by Manoj Aggarwal on 9.1.2001 before the Assessing Officer. We have referred to this statement also in the earlier part of the order. In fact, we have also opined that the context and tenor of the statement given on 8.1.2001/9.1.2001 shows that what was being enquired into was the role of Manoj Aggarwal in respect of only the share transactions and there was no mention in this statement of any jewellery transactions or the transactions of Bemco. It was because of this aspect of the matter that Mr. Ved Jain, the learned representative for the assessee, at some point in the course of his arguments submitted that no question was asked to the assessee about Bemco’s transactions at any stage of the assessment proceedings and it was only for the first time that queries were raised by the Assessing Officer in his show cause notice dated 28.2.2002. Mr. Jain’s further submission was that in a block assessment, the undisclosed income can be determined only on the basis of evidence unearthed during the search and that the assessment order cannot be supplemented by additional reasons or information collected later, unless such information is relatable to the evidence unearthed. It appears to us that Mr. Jain’s argument is not off the mark.

77. In the course of his arguments, Mr. Kapila, the learned special counsel for the revenue pointed out that in the statement of Manoj Aggarwal given before the Assessing Officer on 14-12-2000 (pages 52-56 of the paper book filed by the assessee) he had not excluded the melters from the admission that he gave only accommodation entries even while excluding Bemco and M/s. Bishan Chand Mukesh Kumar, with the result that impliedly he had accepted that even the jewellery business of Bemco was only an accommodation entry business and not real. He referred to the Sl. Nos. 17, 23,24,29 and 33 in the statement which were, according to him, names of melters such as Shanker Fine Arts, Shiv Shanker Tiwari, Vishnu Sethi, and Kishan Fine Arts. It is difficult to hold that because the names of these melters were not excluded from the admission, the jewellery business was also of accommodation entries only. Firstly, there is clear exclusion of Bemco from the admission and this is not disputed even by Mr. Kapila. If anything, the inference should be that the accounts of the melters also reflect genuine jewellery business and not the contrary. Secondly, the assessment order contains no reference to the melters named above and there is nothing therein to show if any enquiries were made from them about their role. Thirdly, even while recording various statements of Manoj Aggarwal, the Assessing Officer has not put any question about these persons to him. In fact, it was only during the arguments of Mr. Kapila that he drew our attention to the melters, provoking Mr. Ved Jain, the learned representative for the assessee to point out that in a block assessment under Chapter XIV-B of the Act there is no scope for relying on evidence that has not been unearthed during the search nor can the Assessing Officer rely on information collected by him in the course of the assessment proceedings unless such information is relatable to the evidence gathered during the search. His objection was that it was not open to the learned special counsel for the department to add to or keep improving the block assessment order by referring to material which has not been unearthed during the search or to information which has no link with the material collected during the search. The reference to the melters, according to Mr. Ved Jain, during the arguments was therefore impermissible. We see force in the submission. Apart from the three reasons which we have given above which make it difficult for us to draw the inference that the jewellery business was not genuine or real because the assessee did not specifically exclude the melters from” the admission, we have also to uphold Mr. Jain’s objection, having regard to the language of Section 158BB(1), as amended retrospectively from 1.7.1995 by the Finance (No. 2) Act, 1998.

78. We may now turn to the enquires conducted by the Assessing Officer at Amritsar in order to show that Bemco/Manoj Aggarwal was involved in giving accommodation entries only even in respect of the jewellery business. Sunil Kapoor, one of the mediators, gave statements before the DDIT, Amritsar on 3.12.2001 to 23.7.2002 in which he said to have accepted that some assessees of Amritsar had shown bogus sale of jewellery to Bemco. In the statement given on 3.12.2001, Sunil Kapoor has stated that he was dealing in silver ornaments and Manoj Aggarwal used to come to Amritsar for sale of his products and also purchased silver items from Amritsar for sale at Delhi and this is how he came into contact with Manoj Aggarwal sometime in 1991/1992. He stated that in February 2000, one Satish Kapoor of Guru Bazar, Amritsar came to him for getting some entries done by Manoj Aggarwal who had earlier refused. At the request of Sunil Kapoor, Manoj Aggarwal had agreed to give the entries. These entries were given to M/s. Novelty group of cases through Satish Kapoor. Sunil Kapoor also described how the transaction between Manoj Aggarwal and Novelty group of cases were put through. He stated that he did not earn any commission in this transaction and also stated that thereafter every deal took place at Delhi without any material or goods. According to him, no jewellery was ever sold or purchased by anyone but only entries were given. The statement of Sunil Kapoor was given to Manoj Aggarwal for rebuttal. Manoj Aggarwal stated that he knew Sunil Kapoor but denied all the other allegations made by him regarding the accommodation entry business. A copy of his statement dated 25.7.2002 is at pages 166 to 169 of the assessee’s paperbook. In this, he admitted that at the request of R.S. Bansal, one of the mediators, he opened an account in the name of Sunil Kapoor in his books. This statement tallies with what he had stated before the Assessing Officer on 9.1.2001 connecting Sunil Kapoor and R.S. Bansal as the sub-mediator and the main mediator respectively. In the statement dated 25.7.2002, Manoj Aggarwal admitted to having telephonic conversation with Sunil Kapoor but denied that he ever met him. In this statement, a specific question was put to Manoj Aggarwal and he was requested to state “The entries against which the name Sunil Kapoor has been mentioned as accommodation entries”. In answer thereto, he sated that “the transactions pertaining to Friends Portfolio (P) Ltd. may be pertaining to accommodation entries”. Later in the statement, he admitted that his staff may be having correspondence with Sunil Kapoor and may have posted some letters to him. To a specific question whether he paid any commission to Sunil Kapoor, Manoj Aggarwal replied in the negative but added that commission was paid to R.S. Bansal only with regard to Friends Portfolio transactions. Thereafter, the Assessing Officer asked him how is it that he is denying payment of commission to Sunil Kapoor when the seized material shows commission payment of Rs. 78,013/- to him in annexure-14 page 35. Manoj Aggarwal replied that the accounts were opened in the name of sub-mediators (Sunil Kapoor was one of them) to facilitate cash transactions and as far as annexure 14 page 35 is concerned, these details were of purchases of Bemco and that no commission has been paid on the same. The Assessing Officer persisted that the afore-mentioned annexure clearly mentioned commission of Rs. 78,013/- and asked Manoj Aggarwal to explain the same. He replied stating “This statement is not from my books hence I can’t explain why commission was paid as mentioned in the papers”. The statement ended at this place. The Assessing Officer did not bring any material to contradict the statement of the assessee that the annexure was not from his books and hence he cannot explain the payment of commission.

79. On 18.2.2003, Sunil Kapoor retracted from his earlier statement and filed a letter to that effect before the Chief. Commissioner of Income-tax, Amritsar. Copy of his retraction are placed at pages 240 to 242 of the paperbook. A perusal of the retraction shows that he was having business/personal relations with Bemco for the past ten years and that Bemco had purchased jewellery from various persons of Amritsar and other towns for which payments were made by cheques and drafts through its bank accounts in Amritsar. Bemco had also sent cash through messengers or staff for depositing the same in the bank account. Sunil Kapoor had further confirmed that he rendered assistance for purchasing the jewellery and for depositing the cash in the bank and for preparing the cheques or drafts and for these services he was not paid any reward but was only promised a reward. He further stated that he was coerced by the income-tax authorities led by the DDI (Investigation, Circle 2, Amritsar) into giving a statement against Bemco to the effect that the purchases of Bemco were bogus and that all the transactions were paper transactions or accommodation entries. He confirmed that the business done by Bemco as well as three other concerns of Delhi (Bishan Chand Mukesh Kumar, B.M. Designers and B.M. Enterprises) were all genuine and the earlier statement recorded by the DDI was not correct. He even stated that he was not provided the copies of his earlier statement but had been forced to sign an acknowledgement as if he has been supplied with the copies. A prayer was made to the CCIT to look into the matter and stop any further action on the basis of the earlier statements given under duress. It may be seen that the earlier statement was given on 3.12.2001 and 23.7.2002 before the DDIT, Income-tax and the retraction was on 18.2.2003. We have already referred to the reply of Bemco dated 26.8.2002 to the show cause notice issued by the Assessing Officer on 20.8.2002. In this reply, Bemco stated that it did not know any person by the name of Sunil Kapoor and denied having done any transaction through him. A specific request was made for cross examining Sunil Kapoor if his statement was used against Bemco. No cross examination was however allowed though Sunil Kapoor’s statement was relied upon by the Assessing Officer in the block assessment order.

80. After considering the facts noted above, we get the impression that Manoj Aggarwal actually knew Sunil Kapoor and had in fact carried out several transactions through him for which commission was also paid, but these transactions were share transactions and were not the transactions in jewellery. We have earlier made reference to the statement of Manoj Aggarwal dated 8.1.2001/9.1.2001 in which he clarified that Sunil Kapoor was a sub-mediator attached to the main mediator R.S. Bansal. R.S. Bansal was one of the mediators for Manoj Aggarwal’s share accommodation entry business. He seems to have had nothing to do with the jewellery business at all. We have also referred to the statement of Manoj Aggarwal made on 25.7.2002 where he has admitted that the account of Sunil Kapoor was opened in his books at the behest of R.S. Bansal and that the commission payment was only in respect of the share transactions and not in respect of Bemco’s jewellery transactions. He also confirmed in this statement that the commission was paid to R.S. Bansal, perhaps for the account of Sunil Kapoor who was his sub-mediator, and was paid with regard to the share transactions of Friends Portfolio. It would thus appear that Manoj Aggarwal had engaged Sunil Kapoor as sub-mediator for R.S. Bansal, the main mediator, in respect of the share accommodation entry business. It was in connection with such business that he was in contact with Sunil Kapoor. Sunil Kapoor had retracted his statement in about seven months time. It is further seen from the papers compiled at pages 246 to 328 of the assessee’s paperbook which contain several annexures which were seized during the search, that on several dates the names of R.S. Bansal and Sunil Kapoor have been shown next to each other. For example, reference may be made to pages 246, 247, 250 etc. More importantly all these annexures relate to the accommodation entry business in shares. It, therefore, appears to us that Sunil Kapoor was acting as the assessee’s sub-mediator, through R.S. Bansal, the main mediator in respect of the share transactions only and not in respect of the jewellery business. This fact has been used by the Assessing Officer to infer that Sunil Kapoor was also acting as the assessee’s agent in respect of the jewellery business and since the share business was only by way of accommodation entries, the jewellery business was also by way of accommodation entries only. In the light of the facts narrated by us, the logic of the Assessing Officer, with respect, seems to be. inappropriate. There seems to be no direct evidence showing payment of any commission to Sunil Kapoor for facilitating any accommodation transaction in respect of Bemco’s jewellery business. We are accordingly inclined to hold that Sunil Kapoor’s statements given on 3.12.2001 and 23.7.2002 cannot be taken as supporting the stand of the Assessing Officer that Bemco’s jewellery transactions were only paper transactions and not real.

81. We now come to the statement of Girish Mittal, resident of 388, Sainik Vihar, New Delhi. In his case also, there was a search under Section 132 on 3.8.2000. He is stated to have sold certain jewellery belonging to several private welfare and marriage trusts to Bemco. In his statement on oath before the DDIT on 28.8.2000, he stated that the sale was bogus and that they were only accommodation entries without any real transactions having taken place. A copy of his statement was given to Bemco and when Bemco asked for cross examination of Mittal, the same could not be complied with because Mittal was not present on the appointed date. The Assessing Officer had stated in page 36 of the assessment order that the company failed to avail of this opportunity but at the time of hearing the learned representative for the assessee, Mr. Ved Jain made a statement that since Mittal was absent on the appointed date the cross examination could not take place. The statement of Girish Mittal is, therefore, untested testimony and, therefore, not safe to be relied upon. There is no other evidence corroborating his statement. His statement cannot, therefore, add anything to the evidentiary value. In fact, not much of arguments were addressed on the statement of Girish Mittal on behalf of the department except pointing out that the opportunity to cross examine was not availed of by Bemco.

82. In view of the foregoing discussion, it. appears to us that the evidence collected by the revenue authorities is not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus and that Manoj Aggarwal, who was one of the director of the company at the relevant time, controlled and put through these transactions by accommodation entries and earned commission income therefrom. We are aware that the entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of the assessee is opposed to the normal course of human thinking and conduct or human probabilities. This principle has been laid down by the Supreme Court in two leading cases – CIT v. Durga Prasad More and Sumiti Dayal v. CIT . Even applying this principle to the present case, we have felt some difficulty in rejecting the assessee’s plea as opposed to the normal course of human conduct. The circumstances surrounding the case are also, in our view, not strong enough to justify the rejection of the assessee’s plea as fantastic or outrageous. We have considered the background of Bishan Chand Aggarwal and his son Manoj Aggarwal to be of relevance to the case. We have also considered to be of significance the admission of Manoj Aggarwal that only the transactions in the shares are accommodation entries and that Bemco’s jewellery transactions are genuine and we have also given our reasons as to why we consider it to be so. We have also taken note of the fact that most of the questions put to Manoj Aggarwal while recording several statements from him related to the share transactions put through Friends Portfolio Pvt. Ltd. and that hardly any relevant question regarding the activities of Bemco was asked. We have also considered it to be of some importance the fact that the turnover shown in the share transactions, which were admitted to be bogus, was about three & half times the purchases of Rs. 36.60 crores shown by Bemco in its jewellery business. Added to these are the facts that even in the seized material there was a letterhead of Bemco which showed Jai Sidhi Apartments at Ahmedabad as the branch office of Bemco which means that the claim of Bemco that it had a branch office at Ahmedabad where the gold bars were sold was right as also the sales-tax assessment order under the Gujarat Sales-tax Act where the assessee declared Rs. 24,07,30,000/- as total sales and exempted sales. There was no evidence of any consequence which was unearthed during the search to directly show that Bemco was carrying on only accommodation entry business for jewellery. Sunil Kapoor who was projected as one of the witnesses of the department to support their stand that Bemco’s jewellery business was bogus, has been found by us to have acted as sub-mediator in the share accommodation entry business carried on by Manoj Aggarwal through Friends Portfolio and he has also been paid commission in that business. Bemco has been found to have had a shop or showroom in 1182, Kucha Mahajani and this has been confirmed by the report of the sales-tax inspector as also by the rental receipt starting from January 1998. Thus, the surrounding circumstances, apart from the direct evidence in the case, do not contain anything which belies the claim of Manoj Aggarwal that though his share transaction business was only an accommodation entry business for commission, the jewellery business carried on by Bemco has not been proved to be so.

83. For these reasons, we allow ground No. 3 in the appeal of Manoj Aggarwal. Thus, his appeal in IT (SS) A. No. 404/DeI/2003 is partly allowed. The appeal of the department in IT (SS) A. No. 415/Del/2003 is dismissed.

IT(SS)A. No. 452/Del/2003 (BEMCO JEWELLERS PVT. LTD.)

84. This is an appeal by Bemco which is consequential to our decision in the appeal of Manoj Aggarwal, as stated in paragraph 35 (supra). The result will be that Bemco will be liable to be assessed substantively in respect of the profits from the purchase and sale of jewellery in its regular assessments which have already been completed. No separate addition for commission from jewellery business will be made in the block assessment on the footing that the jewellery business is only by way of accommodation entries. The appeal of Bemco is thus allowed. No costs in all the appeals.

IT (SS)A. No. 33/Del/2006 (M/S. BISHAN CHAND MUKESH KUMAR)

85. The appellant in this appeal has challenged the order dated 16.11.2005 passed by the learned CIT(A)-II, New Delhi on the following concise Grounds of Appeal:

i. That the Ld CIT(A)-II, New Delhi has grossly erred on facts and in law in upholding the assessment framed Under Section Chapter XIVB of the Income Tax Act, 1961.

ii. The CIT(A)-II has failed to appreciate that no valid jurisdiction was assumed by the Assessing Officer to proceed with framing of Block Assessment.

iii. That no satisfaction has been recorded before the completion of assessment of the searched person as such the notice issued Under Section 158BD and the Block Assessment order passed are illegal and bad in law and without jurisdiction.

iv. That the notice issued Under Section 158BD is not in conformity with the statutory provision of the Act and is also barred by time limitation, hence the Block Assessment completed in pursuance to the said notice is illegal, bad in law and without jurisdiction and the same is liable to be quashed.

v. That the CIT(A) has failed to appreciate that alleged satisfaction was recorded in order to make enquires regarding the banks accounts of the assesses and was not based on any material found during the search and the same cannot be construed as valid satisfaction.

vi. That the CIT(A)-II has failed to appreciate the scope of the provision of Chapter XIVB and has erred in sustaining the addition made in the Block Assessment and also failed to appreciate that all the transactions were already entered in the regular books of account and the returns were filed prior to search and the same cannot be treated as undisclosed income.

vii. That the Ld. CIT(A)-II has failed to appreciate that the assessment framed Under Section 158BD r.w.s. 158BC of the Act, without granting the assessee a fair, proper and reasonable opportunity, was in violation of the principles of natural justice and therefore a nullity.

viii. No material has been confronted to the appellant, in spite of specific request, on the basis of which it could be alleged that there was any undisclosed income belonging to the appellant.

ix. That the CIT(A) has erred on facts and in law in upholding the finding that the appellant is engaged in giving bogus accommodation book entries and sustaining the addition of Rs. 56,95,6660/- @ 35 paise as net commission of Rs. 196,89,99,669/-made by the AO by invoking the provision of Section 145. The CIT(A) has also erred in not giving any finding on the applicability of Section 145.

x. That the additions made are arbitrary, unjust and unlawful and are based on mere surmises and conjectures and the same cannot be justified by any material on record and have been wrongly upheld.

xi. That the CIT(A) has erred in the upholding the adverse inference drawn by the AO on the basis of statement of Manoj Aggarwal who is having no connection with the appellant firm. The finding recorded by the CIT(A) that the whole setup was a facade and appellant is not in the business of sale and purchase of jewellery in illegal and based on imagination and is not borne from the facts and material on record.

xii. That the alleged approval of the Add CIT before passing the Block Assessment order is illegal, invalid and bad in law as the same is given in a mechanical manner and without any opportunity to the appellant.

xiii. That the Ld. CIT(A) has further erred both in law and on facts, in confirming the levy of inter Under Section 158BFA of the Income Tax Act, 1961 which was not leviable at all and deserved to be deleted.

xiv. That the CIT(A) has erred in law and on facts in upholding the additions without passing any speaking order and without giving any independent reasoning.

86. The order dated’ 16.11.2005 under challenge in appeal before this Bench arises out of the order of block assessment dated 31.12.2004 passed Under Section 158BD r.w.s. 158BC of the Act holding that the appellant had earned undisclosed income of Rs. 83,53,811/- in the circumstances stated in the said order of block assessment which is assailed in this appeal. Before we proceed to consider the legal issues thrown-up for consideration, it -would be relevant to briefly narrate the circumstances in which the undisclosed income of Rs. 83,53,811/- has been assessed by the Assessing Officer in the order dated 31.12.2004.

87. As observed earlier, a search was conducted on 1.8.2000 at the various residential and office premises of S/Shri Bishan Chand Aggarwal and Manoj Aggarwal and their various associate concerns including M/s Bemco Jewellers Pvt. Ltd. Block assessment of Shri Manoj Aggarwal, Shri Bishan Chand Aggarwal as well as M/s Bemco Jewellers Pvt. Ltd. were completed under Section 158BC on 29.8.2002. In such assessments, the Assessing Officer inferred that the main source of income of Shri Manoj Aggarwal was from providing accommodation book entries of various kinds through various entities floated by him and commission thereof. Shri Bishan Chand Aggarwal and Shri Manoj Aggarwal were Directors in M/s Bemco Jewellers Pvt. Ltd., in which case also the Assessing Officer inferred that all the transactions undertaken were bogus accommodation entries transactions following the reasoning in the case of Shri Manoj Aggarwal. At this stage, we are not touching upon such reasons in detail since the same have been discussed in detail while dealing with the appeals in the case Shri Manoj Aggarwal. The assessee is a partnership firm with Shri Bishen Chand Aggarwal & Shri Mukesh Aggarwal as partners and was claimed to be operating from 1166/202, Kucha Mahajani, Chandni Chowk, Delhi-6. It was also claimed that the firm had a Branch Office at D-91, Ladli Path, Chomu House, Jaipur. In this case too, the case made out by the Assessing Officer is that the assessee was not doing any real business of purchase or sale of jewellery and instead the bank accounts of the assessee were used for providing bogus accommodation entries of sale and purchase of jewellery to various persons. According to the Assessing Officer the nature of activities of this concern is in no way different from the other entities, for example M/s Bemco Jewellers Pvt. Ltd., which have been used by Shri Manoj Aggarwal for providing bogus accommodation entries.

88. The Assessing Officer issued notice to the assessee firm under Section 158BD read with Section 158BC of the Act. It is observed in the assessment order that She satisfaction to initiate proceedings in the case of the assessee firm was based on the seized material found during the course of search, statements recorded during the search, -investigations carried out during the post search proceedings and during assessment proceedings in the case of Shri Manoj Aggarwal and M/s Bemco Jewellers Pvt. Ltd. The Assessing Officer has observed that in the course of search, bills showing sale of jewellery by the assessee firm to M/s Bemco Jewellers Pvt. Ltd. were found. The business of M/s Bemco Jewellers Pvt. Ltd. was examined in the course of block assessment where it was held that the said concern was merely engaged in the business of providing bogus accommodation book entries of sale and purchase of jewellery only and no genuine sale or purchase was done. According to the Assessing Officer, the fact that the assessee firm had shown substantial transactions of sale of jewellery to M/s Bemco Jewellers Pvt. Ltd., which has done no genuine business of jewellery, shows that no genuine business of purchase/sale of jewellery was done by the assessee firm and therefore, the assessee firm was also engaged in providing bogus accommodation entries of purchase/sale of jewellery.

89. The Assessing Officer made further enquiries during the assessment proceedings and also recorded the statement of Shri Bishan Chand Aggarwal. With regard to the claim of the assessee of running a Branch Office at Jaipur, the Assessing Officer confronted Shri Bishan Chand Aggarwal. The assessee had shown sales of more than 100 crores from its Jaipur office. Shri Bishan Chand Aggarwal stated that this office was being managed by one Shri Sunil Kumar, a relative of his in rented premises. The Assessing Officer made enquiries at Jaipur and statement of Smt. Lad Kanwar, w/o Shri Ramesh Singh, the owner of the premises was recorded by the ADIT (Inv-II) Jaipur on 21.12.2004. Smt. Lad Kanwar reported that though Shri Sunil Kumar had taken on rent one room in her premises for 5-6 months in 1998, he was not doing any business of jewellery. Smt. Lad Kanwar, it is observed by the Assessing Officer, also stated that she had never rented any premises to the assessee firm. The Assessing Officer inferred from the statement of Smt. Lad Kanwar that no business of jewellery was ever conducted at the stated premises in Jaipur. The assessee was also asked to produce Shri Sunil Kumar. The Assessing Officer observes that the assessee never produced Shri Sunil Kumar nor gave his address. He, therefore, inferred that there was no evidence that Shri Sunil Kumar was doing any business on behalf of the assessee firm at Jaipur. Even otherwise, the Assessing Officer noticed that the claim of the assessee of having sold jewellery in excess of Rs. 100 crores in less than 1 1/2 years in its newly set up office at Jaipur, was not probable. The Assessing Officer noticed that all sales made from the alleged office at Jaipur were of small amounts below Rs. 1,00,000/- indicating a large number of alleged customers of jewellery and it is impossible that the landlord who was residing at the same premises would not even know the existence of the assessee firm.

90. Secondly the Assessing Officer considered the stand of the assessee that it was running its business at Delhi office in 1166/202, Kucha Mahajani, Chandni Chowk, Delhi-6. The Assessing Officer made local enquiries and found that the said shop was closed 4-5 years back and that very few customers visited the shop. The assessee had shown sales of about Rs. 90 crores from this premises in just two years and the Assessing Officer observed that almost all the bills were cash sales without any name and address of the parties. In the absence of this information, such sales shown by the assessee were unverifiable. In view of the enquiries made and also the methodology of executing sales claimed by the assessee, the Assessing Officer found it improbable that such a large turnover of sale of jewellery can be carried out by the assessee firm from this premises.

91. Thirdly, the Assessing Officer noticed that the assessee firm had shown substantial business of purchase of jewellery from Amritsar. The assessee had maintained four bank accounts in Amritsar wherein cash deposits of around Rs. 45 crores was shown in these accounts. Shri Bishan Chand Aggarwal stated in a statement before the Assessing Officer on 17.12.2004 that the business at Amritsar was conducted from the premises pertaining to S/Shri Sunil Kapoor, Madan Lal, Sudhir Kapoor and Satish Kapoor, who were engaged in the jewellery business at Guru Bazar. Amritsar. It was explained that the assessee’s purchase executives used to carry the cash and deposit it in the bank accounts of the firm at Amritsar. It was explained that the above four local persons introduced the purchase executives of the assessee firm to local persons willing to sell the jewellery to the assessee firm and that no commission or incentives was either promised or paid to these four persons for their services. It was also explained by Shri Bishan Chand Aggarwal, in relation to the business of purchase of jewellery from Amritsar that the purchase executives used to bring the jewellery from the sellers in Amritsar to Delhi where it was valued and then its price was determined and accordingly the cheques were issued to the sellers of the jewellery. The Assessing Officer has noticed that enquiries were conducted by the DDIT, Amritsar and it was found that the four persons were local agents of the assessee firm and they were engaged by the assessee firm for providing accommodation entries of purchase of jewellery to various beneficiaries. The Assessing Officer has narrated the modus-operandi whereby it is stated that blank cheques of the assessee’s bank account were kept by these four agents. The cash belonging to the beneficiaries was deposited in the bank accounts of the firm by either the beneficiaries or by said agents and subsequently the cheques were issued against these cash receipts. The Assessing Officer has referred to statement of four persons recorded by the DDIT, Amritsar on 29.1.2003, 30.1.2003 and 31.1.2003 in this regard. The Assessing Officer has further noticed that the said agents were also operational in relation to the affairs of M/s Bemco Jewellers Pvt. Ltd., whose purchase and sales were held to be bogus in the block assessment proceedings. For the same reasons as noticed by the Assessing Officer in the assessment of M/s Bemco Jewellers Pvt. Ltd., the Assessing Officer held that the so called agents were in fact working as contact persons only for providing accommodation entries to the beneficiaries from the assessee firm. The Assessing Officer has also observed in relation to the purchase of jewellery at Amritsar that the bank accounts of the firm at Amritsar show that the entries in these accounts are anything but genuine. In these accounts, cheques were issued on the same date on which cash was deposited and the net amount was always negligible. Further, the Assessing Officer found it improbable that the purchase executives of the assessee firm were helped in making purchases by the said four agents without charging any commission. This further established the in-genuineness of the business, according to the Assessing Officer.

92. Fourthly, the Assessing Officer also found it abnormal that the jewellery purchased was first brought to Delhi where it was valued and its price determined. While no payment was made to the seller of the jewellery who had to wait for even the price of the jewellery to be determined which was done at Delhi as claimed by the assessee. The Assessing Officer further noticed that the jewellery claimed to be purchased by the firm included diamonds studded jewellery. That Shri Bishan Chand Aggarwal had stated that in the diamond studded jewellery, first the diamonds were separated from the metal then price was determined. It was improbable that the diamonds could be dismantled even before the payment for the jewellery to the seller was made, while the seller all along was at Amritsar and not at Delhi.

93. The Assessing Officer has also examined the explanation of Shri Bishan Chand that the jewellery so purchased was converted into raw metal and the diamonds etc. were segregated and thereafter sold separately. The Assessing Officer noticed that there was no proof of melting of jewellery. It is observed that the assessee was asked to produce galaiwalas, through whom the melting of jewellery is claimed to have been executed. It is stated that the assessee could not give the address of these galaiwalas and even the bills of only a few galaiwalas could be produced by the assessee. The Assessing Officer made local enquiries. On the basis of the enquiries the Assessing Officer observed that all the concerns mentioned by the assessee for having carried out the melting work were bogus entities and non-existent.

94. The Assessing Officer noticed further abnormalities in the business of purchase/sale of jewellery claimed by the assessee firm. The assessee had shown purchase of jewellery from sellers from far flung places like Gujarat, Madhya Pradesh, Assam, West Bengal, Uttranchal and also small towns like Rudrapur etc. The Assessing Officer found it unlikely that the sellers at so far away places would come to sell the jewellery to the assessee firm at Delhi. That there was substantial time difference of months between the alleged purchase of jewellery and the payment made with respect to said purchases. That the purchase bills indicated that the purchases were invariably in lacs of rupees and the sellers were having first time transactions with the assessee firm. That even then, the sellers agreed to accept payments months after the assessee firm made the purchases. That there was a sudden rise in the turnover of the assessee firm which itself shows the in-genuineness of the business. In the assessment year 1997-98, the turnover was Rs. 13.39 lacs and the total turnover since formation of the firm in three years upto assessment year 1997-98 was Rs. 22.78 lacs. Further in assessment year 1998-99, turnover was Rs. 13,461.62 lacs and in the assessment year 1999-2000, it was Rs. 6256.92 lacs. That after this the assessee firm suddenly closed down the business.

95. The Assessing Officer further noticed that the assessee was repeatedly asked to produce the books of account which were not produced. It was only on 22.12.2004 that the assessee produced some books of account. Even then, most of the books of account were not produced and an affidavit was filed that all the books were maintained but these were not traceable. No books of account or bills/vouchers for the assessment years 1995-96, 1996-97, 1997-98, 2000-01 or 2001-02 were produced. Only some of the record for assessment year 1998-99 and 1999-2000 was produced. The Assessing Officer was satisfied that the books of account of the assessee were not reliable and did not give the correct affairs of the assessee firm and thus rejected the same under Section 145 of the Act.

96. All the above facts, according to the Assessing Officer corroborated that the assessee firm was not doing any real business of purchase/sale of jewellery and instead it was engaged in the business of providing bogus accommodation book entries only and coloured such transactions of accommodation book entries as transactions of purchase/sale of jewellery. The Assessing Officer inferred that the nature of activities of the assessee firm are in no way different from the other entities viz M/s Bemco Jewellers Pvt. Ltd. which has been used by Shri Manoj Aggarwal and Shri Bishan Chand Aggarwal for providing accommodation entries. The Assessing Officer, thus inferred that the assessee had merely earned commission income on the accommodation entries of the alleged total purchases amounting to Rs. 196,89,99,669/- shown by the assessee firm during the block period. The Assessing Officer has quantified the commission income earned by the assessee firm for providing these accommodation entries @ 50 paise per hundred rupees. This quantification was based on his similar action taken in the block assessments of M/s Bemco Jewellers Pvt. Ltd. Accordingly, a gross commission income was computed at Rs. 98,44,998/-. The Assessing Officer allowed a deduction @ 10% on account of the likely expenses to have been incurred for earning this commission income. Hence, the net commission income of the assessee was worked out to Rs. 88,60,498/- and after reducing there from the income disclosed by the assessee firm of Rs. 5,06,687/-during the various years of the block period, the total net undisclosed income of the assessee for the block period was computed at Rs. 83,53,811/-.

97. The assessee had carried this addition in appeal before the CIT(Appeals). The order of assessment was assailed by the assessee both on legal as well as factual grounds. The CIT(Appeals) has upheld action of the Assessing Officer in principle. However, while estimating the commission income the CIT (Appeals) has found it expedient to adopt 35 paise per hundred rupees as appropriate. He has, accordingly directed the Assessing Officer to charge commission income @ 35 paise per hundred rupees on the turnover of Rs. 196,89,99,669/- as computed by the Assessing Officer

98. The genesis for the block assessment order is to be found in the notice dated NIL issued under Section 158BC read with Section 158BD of the Act by the Dy. Commissioner of Income Tax, Central Circle – 3, New Delhi. It is necessary to reproduce the said notice (placed at page 118 of the Paper Book filed by the appellant) as certain vital issues arise for determination in the appeal and it reads thus:

Notice Under Section 158BC r.w.s. 158BD of the I. Tax Act, 1961 Office of the Dy. Commissioner of Income Tax Central Circle 3, New Delhi.

Dated:-

To, Bishan Chand Mukesh Kumar 1166/202, Kucha Mahajani, Chandni Chowk, New Delhi.

Sir, In pursuance of the provisions of Section 158BC r.w.s. 158 BD of the Income Tax Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of the block period as defined in Section 15SB(a) of the Income Tax Act, 1961 i.e. from previous year ending 31.03.99 to previous year 31.03.2000 and from 1.4.2000 to 3.8.2000 relating to the A.Ys. 1991-92 to 2001-02 (upto 03.8.2000 in respect of which you are assessable as firm.

The return should be in prescribed form No. 2B and be delivered in this office within 15 days of service of this notice duly verified and signed in accordance with the provisions of Section 140 of the Income Tax Act, 1961.

Sd/-

(Ram Mohan Singh) Dy. Commissioner of Income Tax Central Circle – 3, New Delhi.

99. It will be seen from the said notice that it is issued to Bishan Chand Mukesh Kumar as a firm directing the said firm to file a return in Form No. 2B within fifteen days of service of the said notice and admittedly the return called for was filed on 16.06.2003 declaring nil undisclosed income therein. The return filed related to the block period from 01.04.1990 till the date of the search of the person searched on 03.08.2000.

100. The admitted facts material to the issue on hand are that a search was conducted on 03.08.2000 in the cases of S/Shri Bishan Chand Aggarwal and Manoj Aggarwal and their associate concerns in New Delhi and block assessments were made in their cases under Section 158BC of the Act and the present proceedings are stated to be a follow up of the said J58BC proceedings. This could be discerned from the fact that the appellant requested for a copy of the recording of satisfaction leading to the issue of the impugned notice under Section 158BD which was not initially provided but was later on provided on the direction of the Hon’ble High Court at New Delhi pursuant to a writ petition filed by the appellant. As the said note of satisfaction dated 19.12.2002 is also under challenge it is essential to reproduce the same verbatim which is as under:

M/s Bishan Chand Mukesh Kumar 1166/202, Kucha Mahajani, Chandni Chowk, Delhi.

Search & seizure operations were conducted on 03.08.2000 at various residential and office premises of Sh. Manoj Aggarwal and his associate concerns. The block assessments of this group have been completed on 29.08.2002. The assessment order of Sh. Manoj Aggarwal. Conclusively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis. The modus operandi adopted by him have been elaborated in para 1.5 of the assessment order of Sh. Manoj Aggarwal. For the purpose of providing such bogus accommodation book entries, he had used the names and bank accounts of various companies, benami proprietorship concerns in the names of his employees, in the names of his relatives and various H.U.F. entities and firms. There are substantial cash and clearing deposits and withdrawals from these bank accounts.

One such concern is M/S Bishan Chand Mukesh Kumar, the bank accounts of which was operated by Sh. Mukesh Kumar and Shri Bishan Chand Aggarwal. The source of the cash and clearing deposits and the withdrawals from these bank account needs to be examined. These accounts have been used for accommodation book entries and hence, undisclosed income has arisen in the hands of this concern which has been found during the course of search & seizure operations in the case of Sh. Manoj Aggarwal and his associate concerns. Thus, proceedings Under Section 158 BD are applicable in this case.

Issue notice Under Section 158BC r.w.s. 158BD.

Sd/-

(Ram Mohan Singh) Dy. Commissioner of Income Tax Central Circle – 3, New Delhi.

101. The sum and substance in this appeal is that the notice dated nil issued under Section 158BC read with 158BD suffers from congenital infirmity rendering the said notice void ab initio on various grounds, inter-alia:

(a) that there are material irregularities in the said notice;

(b) that the said notice is not in conformity with the provision of sub Clause (i) of Sub-section (a) to Section 158BC:

(c) that the said notice was not in pursuance of a note of satisfaction as required in law and in particular Section 158BD of the Act;

(d) that the impugned note of satisfaction was bad in law for the reason that it was not in conformity with law and beyond time; and, that

(e) the proceedings are barred by limitation.

102. A further contention pursuant to the above and strongly urged is that the impugned note of satisfaction does not show that the Assessing Officer assessing the person searched was satisfied that the material and evidence unearthed as a result of the said search had indicated any undisclosed income as belonging to the appellant firm and so the pre-requisite for the issue of a notice Under Section 158BD of the Act is conspicuous by its absence and so the entire proceedings are null and void.

103. As can be seen, apart from the legal issues thrown up for consideration the findings on merit are also challenged in great detail and Paper Books have been filed to substantiate the points agitated upon with cases cited to back up the stand of the appellant.

104. The learned special counsel for the Revenue not only defended the orders of the authorities below but has also objected to the learned CIT(A) in restricting the estimate of income to 0.35% as against 0.50% estimated by the Assessing Officer as commission earned by the assessee firm by invoking Section 145 and rejecting the book results. The contentions raised on these issues on both sides shall be adverted to at appropriate places as and when these contentions are taken up for consideration. As we have the benefit of a large number of decisions on the subject from various courts and some of them have been referred to by the contesting parties and as we find that most of the legal issues are almost settled we shall refer to only those decisions that are material to the issues on hand.

105. In order to appreciate the various issues thrown up in this appeal, it is necessary and appropriate to refer to the scheme and the purport behind the introduction of a special chapter for dealing with cases of search i.e. Chapter XIV-B as part and parcel of the Income tax Act, 1961. This chapter deals with the procedure for making assessment in cases of search and was introduced by the Finance Act, 1995 and it comprises of various Sections 158B to 158BH and it came into force with effect from 01.07.1975. The various provisions contained in this chapter underwent changes from time to time keeping in mind various decisions rendered by the courts and they provide for making what can be termed as a block assessment for a block period of a specified number of years (ten years at the relevant time) entailing making of one block assessment for the entire period in respect of the undisclosed income of the said period detected on the basis of the material and evidence found as a result of search. It requires mention here that this block assessment is distinct and separate and independent of a regular assessment for the reason that in these block assessment proceedings the Assessing Officer is concerned only with undisclosed income and in these proceedings he has no power to consider material and evidence not detected as a result of search. It means that if on examination of the material already on record or if as a result of some external information or a survey or some other source other than a search it is found that some income had escaped assessment, then it is open for the Assessing Officer to resort to a regular assessment including re-opening a completed assessment but he cannot drag these items into the block assessment proceeding envisaged under Chapter XIV-B of the Act. Thus, a block assessment proceeding is distinct and different from the regular assessment proceeding and the chapter with which we are concerned deals exclusively with block assessment relating to search and all other proceedings are alien to it. This would be clear if we refer to some of the relevant provisions contained in this chapter. Section 158BB(1) provides for the computation of undisclosed income as under:

(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, fin accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence], as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregated of the losses of such previous years, determined….

106. Section 158BC lays down the procedure for making a block assessment in a search case as under:

Where any search has been conducted under Section 132 or books of 132A, in the case of any person, then,

(a) The Assessing Officer shall

(i) In respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995. but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;

(ii) In respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty five days, As may be specified in the notice a return in the prescribed form and verified in the same manner as a return under Clause (i) of Sub-section (i) of Section 142, setting forth his total income including the undisclosed income for the block period:

Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter:

Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return;

(b) The Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-sections (2) and (3) of Section 143 [section 144 and Section 145] shall, so far as may be, apply;

(c) The Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;

(d) The assets seized under Section 132 or requisitioned under Section 132A shall be dealt with in accordance with the provisions of Section 132.]

107. If the seized material and evidence available indicated that the undisclosed income belongs to some person other than the person searched, Section 158BD of the Act provides the manner of assessing such undisclosed income of the other person in the following words:

Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed [under Section 158BC] against such other person and the provisions of this Chapter shall apply accordingly.

108. This chapter also provides for a time frame for making such block assessment in Section 158BE:

[(1) The order under Section 158BC shall be passed:

(a) within one year from the end of the month in which the last of the authorizations search under Section 132 or for requisition under Section 132A, as the case may by, was executed in cases where a search is initiated or book of account or other documents or any assets are requisitioned after the 30th day of June 1995, but before the 1st day of January, 1997;

(b) within two years from the end of the month in which the last of the authorizations for search under Section 132 or for requisition under Section 132A, as the ease may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January. 1997.

(2) The period of limitation for completion of block assessment in the case of the other person referred to in Section 158BD shall be:

(a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect or search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st January, 1997; and

(b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.]

109. Needless to state, Chapter XIV-B is a complete code by itself providing for the mode and manner of making an assessment in cases of search as different from a regular assessment. It covers two types of persons: firstly, the person searched; secondly, the persons not searched and in respect of whom the search material discloses the existence of undisclosed income in their hands. Section 158BC provides the procedure of making an assessment in the case of the person searched and Section 158BD provides the mode and manner of making an assessment in the case of a person not searched but in respect of whom there is discovery of undisclosed income in his hands. We have the benefit of the various decisions, including that of the Hon’ble Apex Court on this subject and of Hon’ble High Courts rendered from time to time including our jurisdictional High Court which serve as a guide to us and such catena of case laws on the subject gives a clue as to what this chapter is intended for. As the preliminary challenge in this appeal relates to the validity of the impugned notice Under Section 158BD dated nil leading to the block assessment dated 31.12.2004 on various grounds as stated above, it is necessary for us to deal with this specific provision in particular and in detail. We have the benefit of following judgements:

i. Manish Maheshwari v. ACIT and Anr. 289 ITR 341 (SC).

ii. Amity Hotels P. Ltd. v. CIT and Anr. 272 ITR 75 (Del).

iii. Janki Exports International v. Union of India and Ors. 278 ITR 296 (Del).

iv. Priya Blue Industries P. Ltd. v. JCIT 251 ITR 615 (Guj).

v. Khandubhai Vasanji Desai and Ors. v. DCIT and Anr. 236 ITR 73 (Guj).

In the case of Manish Maheshwari (supra) the Apex Court held that before Chapter XIV-B could be invoked against a person other than the person searched Under Section 132 or a requisition is made Under Section 132A, the conditions prescribed Under Section 158BD of the Act are required to be strictly complied with. It was further held that for invoking jurisdiction under the said section it is essential for the Assessing officer to record a satisfaction that any undisclosed income belongs to any person other than the person with respect to whom the search is made Under Section 132 or a requisition Under Section 132A is made; that the books of account or other documents or assets seized or requisitioned are required to be handed over to the Assessing Officer having jurisdiction over such other person; that only upon the happening of the aforesaid that the said Assessing Officer of such other person shall vest with jurisdiction under Section 158BC read with Section 158BD. In simple language, it may be stated that if any material is unearthed as a result of search either under Section 132 or requisition under Section 132A, an assessment has to be made on the person searched on the basis of the material unearthed and available and the accent of Section 158BB is on “evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence” and for this purpose a notice is required to be issued Under Section 158BC of the Act to the person searched and such assessment is termed as a block assessment to be made within a specified time limit as provided in Section 158BE. The assessment to be made shall relate to the undisclosed income uncovered as a result of search and shall be on the basis of evidence found as a result of search. The settled position is therefore that the Assessing Officer having jurisdiction over the person searched has to examine the material unearthed as a result of search and determine the undisclosed income found on such examination. The use of the expression “available” in Section 158BB of the Act clearly indicates that the scope of enquiry for purposes of block assessment is limited to the material and evidence unearthed as a result of search as different from a wider enquiry contemplated in a regular assessment. The Assessing Officer while examining the seized material can conduct further enquiries in respect of such material for eliciting more details but in Chapter XIV-B a roving or fishing enquiry of a sweeping or general nature is not permitted. It is significant that Parliament in all its wisdom has used the expression “available” as against the expression “gathered” in the said section which indicates that the scope of the enquiry envisaged in such cases is limited in nature. The undisclosed income found on such examination may belong to the person searched or it may belong to any other person not searched. In latter event, Section 158BD provides that where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132A, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under Section 158BC against such other person and the provisions of Chapter XIV-B shall apply accordingly. The Apex Court in Manish Maheshwari’s case (supra) clearly laid down the parameters for initiating, action Under Section 158BD as stated above and the first and foremost requirement is that the Assessing Officer making the block assessment in the case of the person searched has to be satisfied that the undisclosed income detected belongs to some person other than the person searched and so the section itself contemplates satisfaction on the part of the Assessing Officer making the assessment in the case of the person searched. We shall advert to this aspect in greater detail when we come to the specific ground taken in this behalf and the submissions made on this aspect by both the parties. Suffice it to say, recording of satisfaction is mandatory as held by the Apex Court. This view has been emphasized in Amity Hotels P. Ltd. (supra) by the Hon’ble Delhi High Court also.

110. It is clear from the above that the provisions of Section 158BD are thus inextricably interlinked and intertwined with Section 158BC and they are like Siamese twins. In the circumstance, it is not possible to view Section 158BD in isolation and de hors Section 158BC as that would militate against the intention behind the enactment of Chapter XIV-B to provide for a complete code for assessment of undisclosed income as different from the assessment of normal income in regular assessment. The concept of undisclosed income as different from what we may call as ‘normal’ or ‘regular’ income is at the very core of this chapter.

111. It is in this context that we have to view the provisions of Section 158BD of the Act. ft is not as if the said provision can be invoked at the whims of the Assessing Officer. On the other hand, the section has certain built in requirements which have to be scrupulously followed as held in the case of Manish Maheshwari (supra) if an attack against an order under this section has to be repelled. The first pre-condition is that the Assessing Officer examining the material found as a result of search or other related proceedings as in 132A should determine whether the material throws up any income which can be termed as undisclosed. If so, he has to identify such undisclosed income. The next step is to determine to whom such undisclosed income belongs. It may happen that such income may not belong to the person searched in respect of whom he has jurisdiction, in which event he has no other option but to give a finding that the undisclosed income does not belong to his assessee but that it belongs to another person whom he has to identify and determine. These have to be positive findings for the reason that the section does not give any elbow room for the Assessing Officer to say it may belong to A or to B or to C. He has to infer on the basis of the material and evidence found that such income belongs to a specified person and identified by him. After arriving at this finding, he has to hand over such material, documents etc., to the Assessing Officer having jurisdiction over the said other person at that material point of time and it is at that stage the second Assessing Officer assumes jurisdiction and steps in and thereafter he shall proceed under Section 158BC against such other person. In short, the Assessing Officer assessing the other person assumes jurisdiction at that point of time. If the Assessing Officer assessing the person searched does not find any undisclosed income at all, or does not arrive at any finding in respect of the same or having arrived at such finding does not hand over the material to the second Assessing Officer, the provisions of Section 158BD do not come into operation at all.

112. It is in this context questions that crop up as to whether there is any time limit at all for assumption of jurisdiction Under Section 158BD; whether there is any requirement for satisfaction being recorded by the Assessing Officer, whether such satisfaction, if required, can be recorded at any point of time; and, whether there is any time limit for issue of a notice Under Section 158BD at all.

113. Section 158BD commences with the words “where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made” and thus it is clear that the satisfaction of the Assessing Officer assessing the person searched is the first and foremost requirement. The Assessing Officer can arrive at this satisfaction only after ascertaining whether there is any undisclosed income at all and this finding can be arrived at by him only in the course of the 158BC assessment proceeding. Thereafter, he has to arrive at a finding as to the person to whom such income belongs. This finding also can be arrived at only in the course of the 158BC proceeding in the case of the person searched. He may find that part of the said undisclosed income belongs to the person searched and the rest belongs to other person or persons. At this stage, he has to give a finding in this behalf as to which of the undisclosed income belongs to the person searched and the other person to whom the rest of the income belongs. This finding too has to be arrived at in the course of the 158BC proceeding. After arriving at this finding, he makes an assessment of the undisclosed income relating to the person searched in his hands and hands over the material relating to the undisclosed income belonging to the other person or persons to the respective Assessing Officers. As 158BC proceeding is specifically intended for determining the undisclosed income, the material unearthed has to be examined in the course of the said proceeding and if such examination shows that the undisclosed income belongs to some other persons a finding in this behalf has to be recorded in the course of the 158BC proceeding as such finding has to form an integral part of the said proceeding and in conformity with the intention behind the said provision. So, it is essential that such finding has to form part of the 158BC proceeding and so must find a place in the order under Section 158BC. The Assessing Officer assessing the person searched has to give a finding on each and every material and evidence unearthed after a careful and judicious evaluation and such exercise involves a finding that the undisclosed income belongs to a specified person as found by him on such evaluation. It is this finding that is the pivot around which the 158BD proceeding revolves. If, therefore, in the course of the 158BC proceedings the Assessing Officer assessing the person searched does not give a finding that any part of the undisclosed income unearthed belongs to a person other than the person searched, Section 158BD can never be invoked. It is this finding that is an integral part of both the proceedings whether under Section 158BC or 158BD. For, such finding determines in whose hands the undisclosed income unearthed has to be taxed. If the undisclosed income belongs to the person searched, he is subjected to block assessment on such income under Section 158BC but if such income or part of such income belongs to a person not searched, Section 158BD takes over. This is the essence of the entire enactment relating to search.

114. Section 158BE provides for time limit for completion of block assessment. It stipulates that the order under Section 158BC shall be passed within two years from the end of the month in which the last of the authorization for search Under Section 132 was executed or for requisition under Section 132A as the case may be and so the order envisaged under Section 158BC has necessarily to be passed within this time frame set in law. If there is a time limit for passing such order, there is an implied time limit for giving a finding as to the person to whom the undisclosed income belongs which under no circumstance can be beyond the time limit set in Section 158BE. If there is no such finding given in the order Under Section 158BC, the provisions of Section 158BD stand ousted at the expiry of the said time limit for the reason that such a finding is the very basis for invoking Section 158BD.

115. Section 158BD as said earlier begins with the expression “where the Assessing Officer is satisfied” and so the very section implies a recording of satisfaction. The satisfaction contemplated is a judious satisfaction and not a subjective satisfaction and unless the same is recorded it is not possible for any person to discern whether the satisfaction meets the requirements of Jaw at all. The satisfaction can be found in the order passed under Section 158BC and if no such order is passed then it will have to be found in the note handing over the material seized to the Assessing Officer assessing the other person. In any event, it has to be in writing and in view of Section 158BE, the said recording has to be made before the time set in Section 158BE expires. After the said date, it is not possible to invoke Section 158BD at all.

116. A view is expressed that wherever a time limit is intended, the Parliament has provided for the same and in the absence of a specific provision made in this respect it has to be assumed that there is no time limit intended in law. It has to be remembered that the matter relates to fixing huge financial and other civil liability on the person affected and it has been repeatedly held that there must be a finality to any proceeding under the Act and that a concluded proceeding cannot be reopened at the whim and fancy of the Assessing Officer without the due process of law. Strict interpretation of fiscal statutes is the order of the day and as the provisions for search are draconian in nature such provisions have necessarily to be strictly construed. It will have to be remembered that Section 158BD provides for invoking jurisdiction under the said section enabling the Assessing Officer assessing the other person in respect of whom the Assessing Officer assessing the person searched gives a finding that the undisclosed income unearthed as a result of search belongs to the said person and once such a finding is given the provisions of Section 15SDD come into operation. This, therefore, involves assumption of jurisdiction and cannot be construed as a procedural matter. In the absence of a finding in this behalf, there is no jurisdiction to the other Assessing Officer at all to proceed further in the matter. As the time limit set in Section 158BE applies to such finding, it is only logical that the said time limit automatically applies for invoking the provisions of Section 158BD and it is for this reason that the Parliament did not find it necessary to specify a separate time limit for the same, as the enactment itself shows that both Sections 158BC and BD are inter linked, inter laced and inter twined and both form part and parcel of the same chapter.

117. In the back drop of this analysis of Chapter XIVB of the Income tax Act, 1961, we shall advert to the submissions made by the rival parties before us and in this context we may refer to the written submissions made before the first appellate authority placed at page 179-202 of the Paper Book filed before us. It is contented that the proceedings Under Section 158BD are illegal and without jurisdiction and barred by limitation. It has been -submitted that it is doubtful whether the Assessing Officer making the block assessment had in law assumed jurisdiction over the appellant firm as the jurisdiction vested in the Assessing Officer Ward 10(2) New Delhi. In view of the fact that no opportunity was granted to the appellant before the transfer of the case was effected from one Assessing Officer to the other, the order transferring the said case from the Assessing Officer having original jurisdiction to the Assessing Officer passing the block assessment order is vitiated. It is also the stand of the appellant that since the satisfaction had not been recorded within time the proceedings are barred by limitation. It is the submission of the appellant that although no specific limitation has been provided in the statute, it cannot be construed that unlimited period can be assumed as available with the Department for initiating proceedings Under Section 158BD. It is pointed out that the satisfaction has been recorded on 19.12.2002 and the block assessment Under Section 158BC of the Act in the case of Mr. Manoj Aggarwal has been framed 31.08.2002, the satisfaction having been recorded beyond the date of the order Under Section 158BC, the proceedings are beyond time and void ab-initio. It is submitted that the satisfaction has to be recorded before the conclusion of the 158BC proceeding and in this case the outer limit being 31.08.2002, the said satisfaction is not in accordance with law. In respect of the satisfaction, it is submitted that it is not based on the seized material and in the satisfaction note there is no reference to any incriminating material indicating that the appellant firm was used for accommodation entries and in this connection the decision of the Hon’ble Delhi High Court in Amity Hotels P. Ltd. (supra) is cited to the effect that the satisfaction has to be preceded by the investigation and not the reverse. Reference is also made to the Gujarat High Court decision in the case of Priya Blue Industries P. Ltd. (supra.) It is also submitted that the block assessment has to be framed only on the basis of seized and relatable material and the cases in support are cited:

(i) CIT v. Ravi Kant Jain 250 ITR 141 (Del).

(ii) CIT v. Khushlal Chand Nirmal Kumar 263 ITR 77 (MP).

(iii) CIT v. Ashim Krishna Mondal 270 ITR 160 (Cal).

It is also submitted that the appraisal report prepared by the Investigation Wing does not show that the appellant firm was in the business of providing accommodation entries. In respect of the notice issued Under Section 158BD it is submitted that since a period of fifteen clear days has not been allowed to comply with the said notice, the notice itself is invalid rendering all subsequent proceedings void ab initio. On merits it is submitted that the appellant firm had been assessed to tax in scrutiny proceedings; that the books of the firm had been audited and report under Section 44AB filed in which all the bank accounts had been disclosed and as no fresh material was detected as a result of search, no block assessment is possible. These submissions have been reiterated in the appeal before us and the pleas of the learned authorized representative is that the Hon’ble CIT (A) had disposed of these submissions in a cursory manner without appreciating the serious nature of the said submissions.

118. Besides supporting the orders of the authorities below, it is submitted by the learned Special counsel that recording of satisfaction in respect of third party is neither integral nor relevant in the assessment of the raided person especially when the Section 158BD does not contain the expression “in the course of any proceeding” as can be seen in Section 271(1); that satisfaction may be recorded at any time within a reasonable period from the date of completion of assessment Under Section 158BC of the searched person; that if there is no inordinate delay it cannot be challenged; that the practical problems in the way have to be appreciated; that the satisfaction note need not necessarily contain any finding of undisclosed income and that it is enough if the note shows a prima facie case of existence of undisclosed income; that there is no limitation for commencement of proceedings under the Act excepting in the provision to Section 143(2), that even in respect of Section 158BC there is limitation provided for conclusion of block assessment but not for commencement and hence the question of limitation does not apply. In respect of the material defects in the notice pointed out by the learned Representative for the appellant it is submitted that the whole mater is procedural in nature; that Section 292BB recently inserted by the Finance Act, 2008 shows that any defect in such notice can be cured and is not fatal; that even otherwise the said notice is not a statutory notice and is intended only to ensure that the person proceeded against is duly informed of the matter and in this behalf the decision of the Special bench of the ITAT in Smt. Krishna Verma reported in 107 ITD 1 (SB) (Del) is cited. Various case laws are cited in support of the submissions which are:

i) Lalta Prasad Goenka v. CIT, Central, Bombay 122 ITR 299 (Bom).

ii) CIT, Lucknow v. Ajodhya Prasad Gopi Nath 107 ITR 951 (All).

iii) ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (S.C).

iv) CIT v. Gopal Krishna Singhania 89 ITR 27 (All).

v) CIT, U.P. v. Bankey Lal Hira Lal 92 ITR 587 (All).

vi) Navavuga Traders Gunnies Firm, Rajahmundry v. CIT 79 ITR 519 (AP).

119. At the outset, a substantial question about the validity of the notice issued Under Section 158BC read with Section 158DD has been raised by the learned Representative for the appellant and seriously countered by the learned Departmental Representative and so we consider it essential to take up this issue first as the benefit of certain High Court decisions on the subject are available to enable us to arrive at a finding in this behalf. It is the submission of the appellant that the notice is vague without any date, without mentioning the status and does not indicate as to why the said notice is issued. It is specifically argued that the said notice is not in accordance with the provisions of Section 158BC(a)(i) as the time allowed to file the return is less than the period prescribed. It is therefore submitted that the said notice is invalid and so all the proceedings pursuant thereto are rendered invalid On the other hand, the submission of the learned Departmental Representative is that the whole matter is procedural in nature and so even if there is any defect it is curable and not void ab-initio as contended, especially after the insertion of Section 292BB by the Finance Act, 2008.

120. An almost similar issue cropped up in a proceeding under Section 148 in the case of Winter Care (P) Ltd. in which the issue raised before the Hon’ble Karnataka High Court was whether the notice issued under section MS giving less than 30 days for filing the return of income in contravention of the specific provision for giving not less than 30 days time to file the return was valid in law and the Hon’ble High court answered the question in favour of the assessee holding that such a notice was invalid in law in its judgment dated 15.2.1993 in writ petition number 33832 of 1992 and this decision is referred to by the Bangalore Bench of the Tribunal in the cases of Prabhat Saw Mills and Timber Merchants reported in 51 ITD page 548 and H.G. Narayan reported in 50 1TD 456 (Bang.) and it has been held in these cases that the proceedings pursuant to the issue of such a notice are invalid in law and so the reassessment was void ab- initio and without jurisdiction. The Hon’ble High Court repelled the contention of the Revenue that the defect, if any, was procedural in nature and so curable by holding that the said defect is incurable. It was held that such defect goes to the root of jurisdiction and so the notice giving a time of less than 30 days for filing the return of income under Section 148 was invalid in law. In view of the fact that Section 158BC(a)(i) is in pari materia in so far as the words used therein are identical, the logic behind the said decision would apply on all fours to the case on hand and so the force of this decision has to be applied hereto and as the notice in this case is similarly worded and gives a time of less than 15 days as against the stipulated time of not less than 15 days, the said notice suffers from an incurable defect rendering all proceedings emanating therefrom invalid and void ab-initio. It must be remembered that to overcome the legal hurdle caused by the said decision, Section 148 itself was amended omitting the words “not being less than thirty days”. It is significant that all these events took place much earlier to the introduction of Chapter XIV-B and the Parliament in all its wisdom yet thought it fit to retain a similar expression in Section 158BC(a)(i) even after being aware of the implications of this expression as legally interpreted and so it has to be presumed that the legislature has introduced this provision knowing fully well that they desire that a time of not less than 15 days has to be given. In the light of this, the argument that the whole matter is procedural in nature cannot be taken as reflecting the correct legal position. In the case of Brathwite and Co. Ltd. reported in 201 ITR page 343 the Apex Court has expressed the view that the term “not less than” means the same as “clear” and hence unless a clear time of fifteen days is given as envisaged in Section 158BC(a)(i), the notice is rendered invalid and all further proceedings pursuant thereto are also rendered invalid and void. Hence, the assumption of the jurisdiction under Section 158BD by issue of the impugned notice is not valid in law and the order of block assessment made pursuant to the said notice is also invalid. As the notice itself is not in conformity with the specific provision made in this behalf, we do not consider it necessary to go into the other aspects like not specifying the date, not mentioning the status, and not stating the purpose etc. As the reasoning approved by the Hon’ble Karnataka High Court has been accepted by the government and the law itself was duly amended, we do not find it necessary to discuss the decisions cited on this issue. However, we may make a reference to the decision of the Special Bench of ITAT in the case of Smt. Krishna Verma (supra). In the case of Smt. Krishna Verma (supra), the notice under Section 158BC was issued in case of a person in whose case a search under Section 132 had been conducted. It was thus held that such a notice was a procedural notice issued after acquisition of jurisdiction, which in such cases vests with Assessing Officer in terms of Section 158BA of the Act. The case on hand is on a different’ footing as the impugned assessment is in the case of a person other than a person who is subjected to search and the proceedings are initiated under Section 158BD of the Act and hence the issue of notice under Section 158BC of the Act on the assessee firm is a jurisdictional notice. Therefore, the controversy covered by us with regard to Section 158BC(a)(i) in the present case is factually different than that was before the Special Bench of ITAT in the case of Smt. Krishna Verma (supra).

121. We now turn to the next issue agitated upon vehemently on the question as to whether it is imperative to record satisfaction before commencement of the proceeding under Section 158BD as contended by the Learned Representative for the appellant or whether there is no such requirement as equally contended by the Learned Departmental Representative. The submission of the Learned Representative for the appellant is that the Apex Court has very clearly held in Manish Maheshwari’s (supra) case that recording of such satisfaction is mandatory before assumption of jurisdiction under Section 158BD whereas the learned Departmental Representative submits that recording of satisfaction prior to assumption of jurisdiction is not imperative in view of the absence of the expression “in the course of the proceeding” as appearing in Sections like 271(1)(c). It is submitted that if it was intended that such recording of satisfaction was to be in the course of the 158BC proceeding, it would have been so stated in the provision itself and the absence of such expression in 158BD is indicative of the mind of Parliament.

122. On this, we may state that assumption of jurisdiction is to be preceded by recording of satisfaction can be explicitly put in the Statute, as canvassed by the learned Departmental Representative or it can be implicitly put in the Statute, as canvassed by the learned Representative for the appellant. In this context, we may refer to the Apex Court decision in the case of Manish Maheshwari (supra) wherein in the operative part of the judgment it has been held that “as the Assessing Officer has not recorded his satisfaction which is mandatory nor has he transferred the case to the A.O having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly”. In Amity Hotels P. Ltd. (supra), the Hon’ble jurisdictional High Court held that “it is very clear that satisfaction is required and it cannot be said that proceedings can be initiated without such satisfaction”. A similar view was taken in Priya Blue Industries (supra) by the Hon’ble Gujarat High Court. Even apart Section 158BC provides for assumption of jurisdiction to make a block assessment in the case of a person not searched and against whom no proceedings have till then been initiated. Can it be said that such Jurisdiction can be assumed without recording satisfaction? We do not think so. It has to be noted that the proceedings under Section 1588C are against the person searched and if in the course of such proceeding the Assessing Officer assessing the person searched comes across material indicating the presence of undisclosed income in the hands of the person not, searched, there has to be a provision for making a similar assessment in the case of the, other person. As Section 158BC relates to a person searched, there has to be different provision for making a similar assessment in the case of the other person and hence Section 158BD has been enacted. So, the said section states that if the Assessing Officer is satisfied that the undisclosed income belongs to the other person, then he shall hand over the seized material so as to enable the second Assessing Officer to make a block assessment in a similar manner and that is not possible if the satisfaction is not recorded. And this can be recorded only and only in the course of the 158BC proceeding and nowhere else. It is the Assessing Officer assessing the person searched who goes through the seized material and comes to a decision as to whether there is any undisclosed income unearthed as a result of search, if so its nature and to whom it belongs. If the said undisclosed income belongs to the person searched that is the end of the matter. If, on the other hand, the material examined shows that the undisclosed income pertains to some other person he has to give a finding to this effect and thereupon transmit the related seized material to the Assessing Officer having jurisdiction over the other person. All these findings have to be recorded after an honest appreciation of the seized material with an objective mind and there has to be a record reflecting such findings on the basis of which alone the other Assessing Officer can assume jurisdiction to proceed against the other person and it is this record which forms the ‘note of satisfaction’ or the ‘record of satisfaction’, as we may call it. In such circumstance, the recording of such satisfaction is impliedly to be done in the course of the 158BC proceeding as the satisfaction has to be recorded only by the Assessing Officer making the block assessment in the case of the person searched which in turn means the 158BC proceedings. In our considered opinion, such satisfaction cannot be recorded beyond the date of the block assessment in the 158BC proceeding and the date of the block assessment is the outer limit for recording such satisfaction. This is for the reason that the satisfaction has to be recorded by the Assessing Officer examining the material in the case of the person searched and he will have to find out whether there is any undisclosed income at all unearthed which again can be only in the course of such proceeding. After finding that there is undisclosed income, he will have to give a finding as to whether such income belongs to the person searched and this too has to be in the course of the said proceeding only. If he finds that any or all of such income belongs to a person not searched, then he has to record such finding in this behalf and take follow up action as envisaged in Section 158BD which again has to be only in the course of the 158BC proceeding and hence if no such satisfaction is recorded in the course of the 158BC proceeding, then assumption of jurisdiction Under Section 158BD is not possible. In the circumstance, we are of the firm view that the absence of the words “in the course of the proceeding” in the section is not material to the issue in the context of the said section itself and so the case laws referred to by the learned Departmental Representative behalf are not considered as relevant to the issue in the view we have herein taken.

123. Having held that recording of satisfaction is imperative before assumption of jurisdiction Under Section 158BD, we may now turn to examine the meaning of the expression “where the Assessing Officer is satisfied” appearing at the beginning of Section 158BD for the meaning so ascertained gives us a clue as to the nature of the note of satisfaction that is envisaged in the said section. It is the submission of the learned Representative for the appellant that such satisfaction must clearly show detection of undisclosed income on examination of the seized material as belonging to the person not searched and that it cannot be based on assumptions and surmises or guesswork. The learned Departmental Representative argued that the term satisfaction appears in various parts of the Act itself and that even in Sections 147/148 dealing with cases of reassessment for assessing income which had escaped assessment, the only requirement is that the Assessing Officer must have reason to believe that there is a prima facie case of existence of escaped income and that there is no requirement that there must be a clear finding of undisclosed income as suggested. In this context, reference has been made to the Apex Court decision in the case of Rajesh Jhaveri Stock Brokers P Ltd. reported in 291 ITR page 500 wherein the term “reason to believe” has been interpreted and the Apex Court held therein that “what is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that state. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer”. It is therefore submitted that in the recording of satisfaction it is enough if a prima facie case is made out.

124. It is true that the term “reason to believe” has come to be judicially interpreted even since the provision for reassessment was introduced in the Act and so the view expressed by the Apex Court in the decision cited supra is in tune with its own earlier decisions. But, the point that has to be considered is whether the use of the term “reason to believe” and “satisfaction” have the same meaning wherever the said terms are used de hors the context in which the said term appears? The term “reason to believe”, as the Apex Court held, implies that the Assessing Officer subjectively believes that he has reason to believe on the basis of the material before him that there is escapement of income in the case of an assessee and so that escaped income has to be brought to tax by re-opening his assessment as per the provisions of Sections 147/148 of the Act. On the other hand, the term “satisfaction” in Section 158BD connotes that there exists undisclosed income and that such undisclosed income is that of the person not searched. The use of the expression “satisfied” in Section 158BD cannot be read in isolation and it has to be understood in the context in which the said term appears in the said section. It will be seen that Section 158BD starts with the expression “where the Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made…”. It is significant that the term “satisfied” is not used in a vacuum but along with the words “that any undisclosed income belongs to…other than the person with respect to whom search was made…” and the words in the context are “undisclosed income” and “belongs to” which clearly indicate that at that point of time when satisfaction is recorded by the Assessing Officer the undisclosed income is to be identified. Further, the said expression does not stop there It further uses the expression “belongs to any person, other than the person with respect to whom search was made” which indicates that the undisclosed income identified by the Assessing Officer is found to be belonging to the other person. It would thus mean that at the stage of recording, the Assessing Officer has reached a finding that undisclosed income has been detected as a result of search and also further that such income belongs to the person not searched. Ail these constitute findings and not a more belief held by the Assessing Officer on the examination of the seized material and hence the satisfaction contemplated in Section 158BD is totally different than contemplated in Section 147. It is fundamental that the Assessing Officer finds out. whether there is undisclosed income. If he finds that there exists undisclosed income, then he has to give a finding as to whom the said income belongs. In the absence of such a finding, it is not possible to conclude a block assessment under Section 158BC. Only thereupon, the 158BD proceeding in respect of the other person for making a similar block assessment of such undisclosed income would commence. Hence, in our considered view, the note of satisfaction must contain a positive finding by the Assessing Officer making the assessment Under Section 15SBC indicating therein the undisclosed income found as a result of his examination of the seized material, the person to whom such income belongs and proceed accordingly as provided for in the said section. The circumstances envisaged and the context in Section 147 and 158BD are entirely different in nature and so it is not possible to import the Apex Court decision in the case cited (supra) into the 158BD proceeding for the reasons detailed herein.

125. In the instant case, we may now examine whether there is any record of satisfaction that meets the requirement of law as enunciated above. We have already reproduced the copy of the said record dated 19.12.2002. It is signed by the Dy. Commissioner of Income tax, Central Circle -3, New Delhi. It is therefore admittedly recorded by the Assessing Officer making the 158BD assessment as the notice under the said section has also been issued by him. This note records that search in the case of Shri Manoj Aggarwal and associate concerns and the block assessment made on him conclusively establishes the fact that he was involved in providing bogus accommodation book entries to various persons on commission basis and for this purpose he had used the names and bank accounts of various companies, benami proprietorship concerns in the names of his employees, in the names of relatives, various HUF entities and firms and one such concern is M/s Bishanchand Mukesh Kumar the bank accounts of which were operated by S/Shri (sic) Kumar and Shri Bishanchand Aggarwal; that the sources of cash and clearing deposits and the (sic) from these bank accounts need to be examined those accounts have been used for (sic) and hence, undisclosed income has arisen in the hands of this concern which has been found during the course of search and seizure operations in the case of Shri Manoj Aggarwal and his associate concerns; thus, proceedings Under Section 158BD are applicable in this case. Admittedly, this note is after the date of block assessment in the case of Manoj Kumar Aggarwal which was finalized on 29.08.2002. Further, the note of satisfaction is not recorded by the Dy. CIT, Central Circle-3, New Delhi acting as the Assessing Officer making the assessment Under Section 158BC of Manoj Kumar Aggarwal since the said assessment has been finalized earlier. Clearly the note of satisfaction dated 19.12.2002 is beyond the date of block assessment in the 158BC proceedings dated 29.8.2002 in the case of Shri Manoj Aggarwal. Therefore, the satisfaction recorded is belated.

126. Further, the said note of satisfaction speaks of Manoj Kumar Aggarwal doing accommodation business through various benami concerns and in the names of various persons and earning commission through such accommodation and that one such concern used by him is the appellant firm. It further states that the bank accounts of the firm have to be examined and the source of the cash and clearing deposits and the withdrawals from the banks have to be examined. There is thus no finding in the said note that on examination of the seized material by him in the case of Manoj Kumar Aggarwal he has found that there is undisclosed income and that such undisclosed income belongs to the assessee firm. On the other hand, it says that the bank accounts of the firm have to be examined. There is not even a whisper of detection of undisclosed income in the hands of the firm. The very record leaves a tell tale evidence to the effect that no finding has been arrived at to show that there exists undisclosed income of the assessee firm. Had it been so, there would have been a reference to the same and there was no need to state that further examination of various accounts was required. Hence, the note itself admits that no undisclosed income in the hands of the appellant has been found even on the date of such noting which militates against the requirement of a note of satisfaction in terms of Section 158BD. In order to ascertain whether in the course of the assessment proceeding in the case of Manoj Aggarwal Under Section 158BC there is any finding of any undisclosed income in the case of the appellant; even there, we did not come across any (sic) of the undisclosed income belongs to the (sic) material (sic) we have to hold that the satisfaction note therein indicating the same (sic) dated 19.12.2002 is not the one contemplated in Section 158BD and further that even if it is assumed to be in terms of the said section it does not even remotely show that there is undisclosed income belonging to the appellant firm calling for the assumption of jurisdiction Under Section 158 BD. In the circumstance, we hold that the said note of satisfaction is non-established in law and further that the 158BD proceedings pursuant thereto is invalid and void ab-initio on this ground also.

127. We are of the firm view that the proceedings Under Section 158BD are invalid for the reasons above slated and so the assessment made pursuant to these proceedings is bad in law. The same is accordingly liable to be cancelled.

128. In the view we have taken herein above, the dispute on the merits of the addition made is purely academic. Elaborate arguments have been advanced by the learned Representative for the appellant assailing the addition and the same have also been countered by the learned Departmental Representative in detail. We have not adverted to them for we refrain from rendering our decision on merits of the addition in view of our decision to hold the block assessment order dated 31.12.2004 as invalid in law in the preceding paragraphs.

129. We however may adjudicate upon one more legal issue raised by the assessee in its appeal in the form of additional ground which reads as under:

No notice under Section 143(2) has been served on the appellant within 12 months from the end of the month in which the block return has been filed as such the addition made are illegal and bad in law and the block assessment order is also illegal and without jurisdiction.

In support of the plea for admission of the aforesaid additional ground, it is submitted on behalf of the assessee that the issue raised is purely legal in nature and all the relevant facts are on record, that no new facts are to be investigated and further that the additional ground goes to the root of the matter and is crucial for determining the liability of the assessee and the validity of the order.” It is further submitted that this objection was taken before the Assessing Officer by letter dated 29.11.2004.(copy filed) but the same was not dealt with by the Assessing Officer and no reply was received from him. A copy of the block return filed by the assessee was also filed to show that in the covering letter dated 16.6.2003, the assessee had stated that the return was being filed under protest in response to the notice issued under Section 158DC read with Section 158BD dated nil. It is also pointed out that the above notice is illegal and unlawful. The assessee’s letter dated 29.11.2004 filed before the Assessing Officer is as under:

29-Nov-2004 To Deputy Commissioner of Income Tax, Central Circle-III, ARA, Centre, Jhandewalan, New Delhi.

Sub: PROCEEDING Under Section 158BD READ WITH 158BC Dear Sir, This is in reference of hearing fixed for today in connection with above said case, we have to submit as under:

1. So far as Notice Under Section 158BD read with 158BC is concerned – we have already challenged the validity and jurisdiction of notice vide our letter dated 17-12-2003.

2. We are also going to file a writ with Hon’ble Delhi High Court against your speaking order dated 08-11-2004 received on 18-11-2004.

3. We filed our block return in form 2 B in response to your notice Under Section 158BD read with 158BC on 16-06-2003. And the notice Under Section 143(2) has been received on 18-11-2004, where as per the provision of the Income-tax Act, Notice Under Section 143(2) should be served with in a period of 12 months from the end of the month in which the return is filed, and the impugned notice is beyond the period of 12 months.

4. Without prejudice to the Clause (i) (ii) and (iii) above, we will submit the required detail as per your notice Under Section 143(2) of Income-lax Act, 1961 dated 08-11-2004 received on 18-11-2004, on the next date of hearing. Now you are requested to please adjourn the case for 10 days.

Thanking you, Yours faithfully, for BISHAN CHAND MUKESH KUMAR Sd/-

(Partner) From the above, it may be seen that the notice under Section l43(2) was issued on 8.11.2004 and served on the assessee on 18.11.2004. According to the assessee, since the block return was filed on 16.6.2003, the last date for service of the notice was 12 months from the end of the month in which the return was furnished as per the proviso to Section 143(2)(ii), which means that no notice could be issued after 30.6.2004. The contention is that since the notice was served on 18.11.2004, it is beyond the period of limitation and hence the block assessment order is invalid.

130. The learned special counsel for the department objected to the admission of the additional ground. On merits, he contended that even prior to the assessee’s letter dated 29.11.2004, several hearings had taken place before the Assessing Officer in which the assessee had participated. He further pointed out that the assessee’s letter dated 29.11.2004 is not categorical on the point whether any notice under Section 143(2) was issued and served on the assessee before 18.11.2004. He further contended that under orders of the Hon’ble Delhi High Court, a copy of which is at page 85 of the paperbook, the Assessing Officer was barred from proceeding further in the matter of the assessment till he disposed of the assessee’s objections to the reasons supplied to it for issuing notice under Section 158BD, which meant that the Assessing Officer could not have issued any notice under Section 143(2) before he disposed of assessee’s objections on 8.11.2004 except on peril of committing contempt of the orders of the High Court and that on the very day on which he disposed of the assessee’s objections i.e. on 8.11.2004, he issued the notice under Section 143(2) which was served on the assessee on 18.11.2004. Mr. Kapila thus contended that there was a legal disability on the part of the Assessing Officer from issuing notice before he disposed of the assessee’s objections to the reasons supplied to the assessee for issuing notice under Section 158BD and that the notice having been issued the moment the disability was removed, it must be taken that the notice was issued in time.

131. On a careful consideration of the rival contentions, we are of the view that the additional ground requires to be admitted since it is a legal ground and all the relevant facts are already on record. No investigation into the factual position is required and no new facts are to be brought on record to dispose of the additional ground. We, therefore, admit the same.

132. As regards the merits of the additional ground, it is necessary to clarify a few more facts which are also on record. The notice under Section 158BC read with Section 158BD was issued on 19.12.2002 calling upon the assessee to file a block return which the assessee did on 16.6.2003. The assessee, by letter dated 16.6.2003, asked the Assessing Officer to supply a copy of the reasons recorded by him for issuing the aforesaid notice but the same was not supplied. A copy of the assessee’s letter is at page 1 19 of volume 1 of the paperbook filed by the assessee. The assessee therefore filed Civil Writ Petition No. 5125 of 2003 and Civil Misc. No. 8962 of 2003 before the Hon’ble Delhi High Court. On 24.9.2003, the writ petition was disposed of by a Division Bench of the High Court by observing as under:

by the court:

Mr. R.D. Jolly, learned senior Standing counsel for the Revenue, states on instructions from Mr. Ram Mohan Singh Dy. CIT that the reasons for issuing notice under Section 158BD of the IT Act, 1961, shall be supplied to the petitioner. In view of the statement, we dispose of the writ petition with a direction that on petitioner’s filing objections within two weeks of the supply on the reasons, the AO shall disposed of the same before proceeding further in the matter of assessment for the block period in question. It will be open to the petitioner to raise all the objections with regard to the jurisdiction of the AO in taking recourse to the proceedings in question.

The writ petition stands disposed of in the above terms.

(as reported in (2004) 190 CTR (Del.) 258) Pursuant to the orders of the Hon’ble High Court, the Assessing Officer supplied the reasons for the issue of notice under Section 158BD to the assessee on 3.12.2003. The assessee filed its objections to the same on 17.12.2003. These objections were disposed of by the Assessing Officer on 8.11.2004. On the very same day, he issued the notice under Section 143(2) which was served on the assessee on 18.11.2004.

133. The learned Counsel for the assessee made a reference to Sub-section (b) to Section 158BC which reads as under:

The Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB and the provisions of Section 142, Sub-section (2) and (3) of Section 143 shall so far as may be apply.

Accordingly the Ld. Counsel submitted that Section 158BB provides for the methods of computation of undisclosed income of the block period and Section 158BC prescribes the statutory procedure to be adopted for making a block assessment, and Clause (b) of Section 158BC prescribes the modalities of notice which have to be followed strictly, more particularly when there is a reference to Section 143(2) and the said section provides for limitation as well. It was further pointed out that the delay in disposing of the assessee’s objection was on the part of the Assessing Officer as admitted in the letter of the ACIT written on 10.4.2008, which cannot be taken advantage of by the income-tax department. It was contended that there was no specific provision in the Income-tax Act for exclusion of the time taken by the Assessing Officer to deal with the assessee’s objections as per the directions of the Hon’ble High Court. In this connection it was further submitted that the Assessing Officer took more than reasonable time to dispose of the objections of the assessee thus defeating the very purpose of filing the objections. It was pointed out that it is not the intention of the law to give unlimited time to the Assessing Officer to complete the assessment. To a query from the Bench, as to whether it was open to the Tribunal to examine what would be a reasonable time to dispose of the assessee’s objections, the learned Counsel for the assessee submitted that it would depend on the facts and circumstances of each case and there can be no hard and fast rule. It was pointed out that nothing prevented the Assessing Officer from serving notice under Section 143(2) within the prescribed time and that any notice served after the time prescribed was no notice at all and the consequent assessment requires to be quashed. Reliance was placed on the judgment of the Gauhati High Court in Smt. Bandana Gogoi v. CIT 289 ITR 28 and circular No. 549 dated 31.10.1989 issued by the CBDT when the proviso to Section 143(2) prescribing the time limit of 12 months for service of the notice was added in 1990 (reported in 182 ITR Statutes 24).

134. Mr. Kapila, the learned special counsel for the income-tax department, on the merits of the additional ground submitted that having regard to the direction of the Hon’ble High Court that the Assessing Officer “shall dispose of the same before proceeding further in the matter of assessment….”, the Assessing Officer could not have issued the notice under Section 143(2) before disposing of the objections. He contended that all actions of the Assessing Officer are subject to the orders of the Hon’ble High Court and if necessary the provisions of the Act have to be so read as not to come in conflict with the orders and directions of the Hon’ble High Court. He drew our attention to Section 158BC(b) which says that Section 143(2) shall, “so far as may be, apply” to a block assessment and contended that the quoted words indicate that the procedural provisions such as issue or service of notice are always subject to the directions of the Hon’ble High Court. He further contended that every block assessment under Chapter XIV-B of the Act has to be a scrutiny assessment after issue of due notice to the assessee and the directions of the High Court cannot be used by the assessee to disable the Assessing Officer from issuing a notice under Section 143(2) once such directions have been complied with. In this connection, he referred to pages 4790 & 4791 of the Commentary on Income-tax Law by Chaturvedi & Pithisaria, Volume 3, Vth Edition Reference was also made to the orders of the Tribunal in CIT v. Mrinalini V. Sarabhai 265 ITR (AT) 65 (Guj.) and CIT v. Arkay Wires P. Ltd. 277 ITR (AT) 225 (All.). Mr. Kapila denied that there was any delay on the part of the Assessing Officer to dispose of the assessee’s objections and having regard to the nature of the objections the time taken by the Assessing Officer was quite justified. Referring to the second writ petition filed by the assessee before the Hon’ble High Court in WP (C) 20015 – 16/2004 and the orders of the High Court issued on 17.12.2004 (page 136 of the paperbook filed by the department), Mr. Kapila contended that the order shows that the High Court was aware on the date when it passed the order that an assessment was still pending which in turn means that an assessment order could be still passed by the Assessing Officer and the same could be challenged by the assessee. He contended that the circular referred to by the assessee was not applicable because it was issued before the concept of block assessment was introduced in the Act. He also referred to Section 292BB of the Act introduced by the Finance Act, 2008, with effect from 1.4.2008 which says that where an assessee has appeared in any proceeding or cooperated in any enquiry related to an assessment it shall be deemed that all notices required to be served on him have been duly served upon him in time in accordance with the provisions of the Act and the assessee cannot raise any objection regarding the issue or service or the validity of the notice.

135. Mr. Kapila also filed before us a copy of the letter dated 10th April 2008 written to him by the Assessing Officer in which it was explained that because of shifting of the officers and changes in the incumbent the assessee’s objections to the notice under Section 158BD, though filed on 17.12.2003, could be disposed of only on 8.11.2004.

136. In reply, the learned Counsel for the assessee contended that Section 292BB was prospective and was applicable only from the assessment year 2008-09. He further contended that the explanation given by the Assessing Officer in the letter dated 10 4 2008 is not supported by the relevant facts and the dates and even the order sheet entries are No. made available to verify whether what is stated in the letter is borne out or not. It was submitted that in any case, the entire enquiry itself is illegal since it has been made pursuant to an invalid notice and, therefore, the assessment order itself is invalid.

137. On a careful consideration of the rival contentions, we are of the view that the notice cannot be said to be served after the period of limitation. As rightly pointed out by Mr. Kapila, the learned special counsel for the department, the Assessing Officer could not have issued the notice under Section 143(2) before disposing of the objections of the assessee to the notice under Section 158BD. The clear and unambiguous direction of the Hon’ble High Court is that the Assessing Officer shall first dispose of the assesses objections and thereafter proceed further in the matter of assessment of the assessee The notice under Section 143(2) is a step in furtherance of the assessment proceedings and it could not have been issued by the Assessing Officer before he disposed of the assessee’s objections as directed by the Hon’ble High Court. This is what the Assessing Officer has done. He might have taken 11 months to dispose of the objections of the assessee but that is a different matter and does not affect the validity of the issue of notice under Section 143(2). The Hon’ble High Court did No. lay down any time limit for the disposal of the objections of the assessee. In a case of such complexity of facts and the nature of the evidence, and also having regard to the reasons stated in the Assessing Officer’s letter dated 10.4.2008, it seems to us that the Assessing Officer cannot be said to have taken an unreasonably long period of time for disposing of the assessee’s objections. Be that as it may, the Assessing Officer acted diligently and dutifully in issuing the notice under Section 143(2) on the very day on which he deposed of the assessee’s objections, namely, 8.11.2004. He thus followed the directions of the Hon’ble High Court scrupulously. He did not delay matters unreasonably. There was also no way he could have issued the notice during the pendency of the assessee’s objections since he might have apprehend that it would invite action for contempt of the directions of the High Court. IT is no doubt true that the Income-tax Act does not contain a specific provision for exclusion of the time during which the order of the High Court was in operation for the purpose of issuing notice to the assessee under Section 143(2), but we should also keep in mind the impossibility of a notice being issued by the Assessing Officer in the face of the directions of the Hon’ble High Court that he should dispose of the assessee’s objections first before taking any further step in the matter of the assessment of the assessee. The law does not expect a person to perform the impossible. It is the duty of every officer of the Government and every citizen coming within the jurisdiction of the High Court to obey its orders. It is in this spirit that the Assessing Officer refrained from issuing the notice during the pendency of the assessee’s objections. To hold that even in these circumstances the notice issued on 8.11.2004 was invalid would be unjust and unfair to the Assessing Officer and also to the income-tax department. The learned Counsel for the assessee was not justified in saying that the Assessing Officer tried to take advantage of his own wrong, for he did not commit any wrong in the first place in being obedient to the directions of the Hon’ble High Court; in fact he was acting fully in accordance with law in doing so. The argument of Mr. Kapila based on the presence of the words “so far as may be” in Section 158BC(b) appears to us to cover such cases, and give enough elbow room for the department where the proceedings relating to the issue of notices etc. before completion of the assessment are made subject to the directions of the Hon’ble High Court.

138. We may also in this connection refer to Section 15(1) of the Limitation Act, 1963 which is reproduced below:

15. Exclusion of time in certain other cases.(1) In computing the period of limitation for any suit or application for the execution of a decree, the institution or execution of which has been stayed by injunction or order, the time of the continuance of the injunction or order, the day on which it was issued or made, and the day on which it was withdrawn, shall be excluded.

The above section gives a clue to the position that the time during which an injunction or order of court was in operation should be excluded for the purpose of calculating the period of limitation for filing an action. There is no reason why this position cannot be incorporated while interpreting the words, “so far as may be” appearing in Section 158BC(b).

139. For the above reasons, we are unable to subscribe to the contention of the learned Counsel for the assessee to the effect that the notice served on the assessee on 18.11.2004 under Section 143(2) of the Act was beyond the period of limitation and was invalid and consequently all proceedings pursuant thereto were also invalid. However, having already held the block assessment completed by the Assessing Officer vide an order dated 31.12.2004 to be invalid on the grounds and for the reasons given hereinbefore, we allow the appeal of the assessee.

IT(SS)A. No. 35/De]/2006 (REVENUE’S APPEAL IN THE CASE OF M/S. BISHAN CHAND MUKESH KUMAR) The solitary ground raised by the revenue in this appeal reads as under:

On the facts and in the circumstances of the case, Ld. CIT (A) has erred in reducing the net commission income from .50% to .35% ignoring the fact that the assessee has taken the plea of payment of commission to mediators during the assessment proceedings and this has been considered and clarified that the rate of commission has been taken from the scribblings on the reconciliation accounts of the mediator and thus they indicated the net payment of commission to the assessee.

As we have already cancelled the block assessment framed by the Assessing Officer vide an order dated 31.12.2004 while disposing of the appeal of the assessee, this cross appeal of the revenue emanating from the said order has become infructuous and the same is accordingly dismissed.

ITA No. 163/ASR./2003 [TEJINDER SINGH (HUF)]

140. This is an appeal filed by the assessee against the order of learned CIT (Appeals), Jammu (Headquarter – Amritsar) dated 28.1.2003 and the solitary issue raised therein relates to the addition of Rs. 16,80,475/- made by the Assessing Officer and confirmed by the CIT (Appeals) under Section 68 on account of sale proceeds of jewellery declared under VDIS treating the same as bogus.

141. The assessee in the present case is an HUF which is engaged in the business of manufacturing and sale of knitted fabrics under the name and style of his proprietary concern M/s Raunaq Industries. A return of income for the year under consideration was filed by it on 31.10.1998 showing the total income of Rs. 2,44,687/-. In the said return, long term capital loss of Rs. 1,82,891/- claimed to be arising from the sale of jewellery was shown by the assessee. It was claimed that the said jewellery was declared under VDI Scheme at its cost of acquisition adopted on 1.4.1987 at Rs. 7,88,131/- and after reducing the said cost of acquisition as indexed at Rs. 18,63,365/- from the sale proceeds of Rs. 16.80,475/-, the long term capital loss was arrived at Rs. 1,82,891/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said jewellery was shown to be sold by the assessee to M/s Bishan Chand Mukesh Kumar, Saraf at Kucha Mahajani under four separate vouchers in the month of February, 1998. The confirmation of the said jeweller dated 28.2.1998 was also filed by the assessee confirming the purchase of jewellery made from it. In order to cross verify the said transaction, a letter was sent by the AO directly to the said jeweller on 7.11.2000. There was, however, no reply received by the AO from M/s Bishan Chand Mukesh Kumar either to the said letter or even to the subsequent letters issued on 24.11.2000 and 11.12.2000. The AO, therefore, examined the assessee and in his statement recorded by the AO during such examination, the manner in which the jewellery was sold by it to M/s Bishan Chand Mukesh Kumar and the mode of receipt of payment against the said sale was explained by the assessee. The reason for making the said sale of jewellery to a Delhi based jeweller was also narrated by the assessee in reply to the specific question raised by the AO and the way in which he came to know about the said jeweller was also explained by the assessee. As noted by the AO in his order, a confirmation was also received subsequently from the said jeweller in response to the letters issued by him. In order to verify the genuineness of the said sale of jewellery, a commission Under Section 131 was issued by the AO to DDIT, New Delhi for making the enquiries directly from M/s Bishan Chand Mukesh Kumar. The DDIT, however, informed the AO that the said concern of jeweller did not respond to the summons issued by him and even the Inspector could not trace the said concern at the address given where one concern viz. M/s Aggarwal Brothers was found to be carrying on the business. As the assessment was getting time-barred by 31.3.2001, the AO proceeded to complete the assessment and arrived at a conclusion on the basis of material already available on record that the sale of jewellery shown by the assessee was bogus. He based this conclusion on following factors as emmerated on page 3 of the assessment order

a) The assessee has submitted that the jewellery was very old and has sentimental value. However the same has been immediately sold after the date of receipt of VDIS certificate from the office of worthy CIT, Amritsar.

b) The assessee submits that M/s Bishan Chand Mukesh Kumar jeweler was introduced to him through his relatives at Delhi. However he was unable to identify the relatives.

c) The assessee has further submitted that the representative of the jeweler came to Amritsar to take delivery of the jewellery from Delhi and he handed over the jewellery worth approx 14 Lacs without any receipt or without receiving the payment for the same is also not believable.

d) Confirmation has been received by this office while the party is not traceable at the address as given by the assessee. It is then strange as to why the letters sent by this office were not received back. In case they were duly received and replied, then why were they not traceable on enquiry of Inspector of DDI office. Also non-corporation of the jeweler with the office to whom commission was issued by this office also gives credence to the conclusion being drawn by this office.

e) The jewellery sold interalia includes diamond jewellery sold worth Rs. 367868/- whose value as on 1/4/87 had been shown at Rs. 77170/-. Thus the increase has been shown at 4.77 times. However as per the data of the Export Promotion Council this increase in rates of diamond jewellery has not been so sharp.

142. The Assessing Officer thus treated the relevant cash credits representing alleged sale proceeds of jewellery amounting to Rs. 16,80,475/- as unexplained and added the said amount to the total income of the assessee Under Section 68 in the assessment completed Under Section 143(3) vide an order dated 27.3.2001.

143. Aggrieved by the order of the AO, an appeal was preferred by the assessee before the learned CIT(A) and various submissions were made on its behalf before him to contend that the onus that lay on the assessee to prove the transaction of sale of jewellery to M/s Bishan Chand Mukesh Kumar was duly discharged. In this regard, the points highlighted by the assessee before the learned CIT(A) were as under:

1) Furnished the bank statement where the payments have been received on account of sale of jewellery by account payee cheques.

2) Xerox copies of sale vouchers of jewellery were filed before the Assessing Officer.

3) A letter of confirmation with PAN/GIR No. and Ward No. etc. from the person to whom jewellery has been sold was submitted to the Assessing Officer.

4) The statement of the assessee as recorded in which the assessee has confirmed the sale of jewellery.

5) The jewellery sold was declared under VDIS-97 and necessary certificate as issued by the Commissioner of Income Tax, Amritsar, under the VDIS 97, along with Valuation Report of the jewellery, was filed with the Assessing Officer, not only with the return of income but also subsequently.

6) Notice Under Section 133(6) was issued by the Assessing Officer to the party and the party has, in compliance to the notice, confirmed the purchase of jewellery and also directly forwarded the Zerox copy of the purchase bills to the Assessing Officer, in confirmation of the transaction qua his PAN, Ward No. etc.

7) The sale transactions are duly confirmed both by the buyer and seller. The seller in his statement recorded by the Assessing Officer himself the buyer has confirmed in the confirmation as obtained by your appellant from him and submitted to the Assessing Officer. The buyer has again confirmed the same in compliance to the letter issued Under Section 133(6) by the Assessing Officer, wherein he has also supplied Xerox copies of the bills as called for by the Assessing Officer. The buyer has again confirmed the transactions in submitting to your appellant certified copies of his income tax and sales-tax assessment order and copy of account of your assessee appearing in his books of account, all which clearly established to sale transactions which has been doubted on mere conjectures and surmises by the Assessing Officer.

144. Relying on the aforesaid submissions, it was thus contended on behalf of the assessee before the learned CIT(A) that the AO was not justified in rejecting the explanation of the assessee about the sale of jewellery and in treating the proceeds of the said sale as unexplained cash credits by invoking the provisions of Section 68.

145. The aforesaid submissions made on behalf of the assessee before him during the course of appellate proceedings were forwarded by the learned CIT(A) to the AO and a remand report was sought by the learned CIT(A) from the AO after making necessary enquiries in the matter and after confronting the assessee with all the material available with him. In compliance with the direction of the learned CIT(A), a final remand report dated 20.12.2002 was prepared and submitted by the AO to the learned CIT(A). The contents of the said remand report were as under:

AO’s remand report per his letter No. ITO/W-IV(4yASR/6707 dt. 20.12.02 In this connection, it is submitted that the Dy. Commissioner of Income Tax, Central Circle-3, New Delhi vide his office letter dated 27.11.2002 (copy enclosed for ready reference) has reported that the case of M/s Bishan Chand Mukesh Kumar, Saraf, Delhi to whom the jewellery has allegedly been sold by Shri Tejinder Singh, HUF, Prop: Raunaq Industries, Asr. Has been recommended for proceedings Under Section 158BD. The transactions of this concern have to be seen in totality and deep investigation is required to verify the genuineness of the sale and purchases claimed to have been made by this concern. Mere examination of the books of account of this concern at this stage shall not give the correct state of affairs. The completion of proceedings Under Section 158BC r.w.s. 158BD shall take a substantial amount of time for investigation and the statutory time available is two years from the date of service of notice Under Section 158BD. The DCIT, Central Circle-3, New Delhi has further stated that preliminary enquiries conducted at the alleged showroom of this firm have revealed that no such shop (Bishan Chand Mukesh Kumar, Delhi) existed at the claimed address of this firm i.e. 1166/202, Chandni Chowk, Kucha Mahajani, Delhi, as per the report of the Inspector, copy of which is also enclosed herewith. Shri Bishan Chand Aggarwal, partner of M/s Bishan Chand. Mukesh Kumar was also the Director of a company, M/s Bemco Jewellers (P) Ltd. in which action Under Section 132(1) was conducted and the block assessment proceedings Under Section 158BC have been completed in August, 2002, wherein all the transactions of this concern have been held to be transactions of providing bogus accommodation books entries in the garb of alleged sale and purchase of jewellery.

Keeping in view of the above facts as reported by the Assessing Officer, Delhi, in his report, the transactions of this concern also appears to be bogus. As such, the appeal deserve to be dismissed and appeal may kindly be decided in favour of the department.

146. A copy of the report dated 27.11.2002 received by the AO from DCIT, Central Circle-3, New Delhi as referred to in the remand report was also forwarded by the AO to the learned CIT(A) alongwith his remand report. The contents of the said report were as under:

PER REPORT OF THE DCIT, CEN.CIR-3, NEW DELHI VIDE LETTER DT. 27-11-02 TO THE A.O.

The case of M/s Bishan Chand Mukesh Kumar to whom the jewellery has allegedly been sold by your assessee, Sh. Tejinder Singh, HUF in the F.Y. 1997-98 has been centralized in this circle in Sept., 2001 on the basis of certain seized material found in the case of search & seizure operation carried out in the case of Sh. Manoj Aggarwal, Sh. Bishan Chand Aggarwal and Mukesh Aggarwal in the month of August, 2000. Sh. Bishan Chand Aggarwal and Sh. Mukesh Aggarwal are partners of M/s Bishan Chand Mukesh Kumar. The cases of Bishan Chand Aggarwal and Mukesh Aggarwal were covered Under Section 132(1) and the proceedings Under Section 158BC have been completed in August, 2002. The case of M/s Bishan Chand Mukesh Kumar has been recommended for proceedings Under Section 158BD. The proceedings Under Section 158BD shall be initiated next month. The transactions of this concern have to be seen in totality and deep investigation is required to verify the genuineness of the sales and purchases claimed to have been made by this concern. Mere examination of the books of account of this concern at this stage shall not give the correct state of affairs. The completion of proceedings Under Section 158BC r.w.s. 158BD shall take a substantial amount of time since the case requires in depth and detail investigation and the statutory time available is two years from the date of service of the notice Under Section 158BC.

However, it may be mentioned at this stage that the preliminary inquiries conducted at the alleged showroom of this firm have revealed that no such shop existed at the claimed address of this firm i.e. 1166/202, Chandani Chowk, Kuch Mahajani, Delhi. The report of the Inspector is enclosed. Sh. Bishan Chand Aggarwal was also the Director of a company, M/s Bemco Jewellers P. Ltd. in which case action Under Section 132(1) was conducted and the block asstt. Proceedings have been completed in August, 2002, wherein all the transactions of this concern have been held to be transactions of providing bogus accommodation books entries in the garb of alleged sale and purchase of jewellery.

I shall keep you informed of the developments in the case.

147. A copy of the report dated 25.7.2002 prepared by the Inspector, CC-3, New Delhi after his visit to the premises of M/s Bishan Chand Mukesh Kumar at 1 166/202, Kucha Mahajani, Chandni Chowk, Delhi received by the AO was also forwarded by him to the learned CIT(A) wherein it was reported by the Inspector as follows:

Per report dt. 25.7.2002 of S. Harjinder Singh, Inspector CC-3. New Delhi in the case of Bishan Chand Mukesh Kumar, Saraf, 1166/202, Kucha Mahajani Chandani Chowk, Delhi.

As directed, I visited the above mentioned premises on 25/07/2002. This building is a commercial complex consisting of small shop. Each floor has about 6 to 7 shops, measuring approximately 8′ x 10′ sq.ft. Shop No. is given according to floor i.e. 1st floor start with 100 likewise. On the 2nd floor shop No. 202 is presently occupied by M/s Agrawal Brothers. I met Sh. Chuni and Mahesh, both are employees of M/s Agrawal Brothers. According to them, Agrawal Brothers is operating for the last 5 years. This is a rented shop. According to Sh. Chuni, there has never been any business “establishment in 1166/202, by the name of Sh. Bishan Chand Mukesh Kumar Saraf. Local inquiry also revealed the same.

148. The remand report submitted by the AO as above to him was made available by the learned CIT(A) to the assessee for his comments and in his reply filed in writing, the following submissions were made by the assessee:

1) The remand report as forwarded by the Assessing Officer go to reveal that the firm M/s Bishan Chand Mukesh Kumar, to whom your appellant has been sold the jewellery, has been centralized in the Central Circle-Ill, New Delhi in Sept., 2001 after search having been conducted in August, 2000 on Shri Manoj Aggarwal, Sh. Bishan Chand Aggarwal and one Sh. Mukesh Aggarwal. The Assessing Officer, assessing the firm M/s Bishan Chand Mukesh Kumar has also confirmed that Shri Mukesh Aggarwal and Shri Bishan Chand Aggarwal, are partners in the firm M/s Bishan Chand Mukesh Kumar, which is now assessed by the Deputy Commissioner of Income Tax, Central Circle-Ill, New Delhi. The Assessing Officer has also intimated to the Assessing Officer in the case of your appellant that the case of M/s Bishan Chand Mukesh Kumar has been recommended for proceedings under Section 158BD and the Assessing Officer assessing the firm M/s Bishan Chand Mukesh Kumar has also in his reply pointed out that mere examination of the books of accounts of the firm was not given the correct state of affairs and the completion of the proceedings under Section 158BD shall take a substantial time. There are no findings at this stage, doubting the sale transactions of the assessee, but mere assertion and allegations on the party, who have purchased the jewellery from your appellant.

2) With regard to the existing of the party, we have already submitted the Income Tax Assessment order, the sales-tax assessment order, indicating the address of the party. The confirmation from the party M/s Bishan Chand Mukesh Kumar was already received by the Assessing Officer, which is also on record and no addition under the facts and peculiar circumstances, is called for. With regard to the report of the Inspector that the party never existed at the address, the Assessing Officer/Deputy Commissioner of Income Tax, Central Circle-Ill, New Delhi in his letter to the Income Tax Officer, Ward 4(4), Amritsar has enclosed report dated 25/07/2002 of one Inspector. Here it is worthwhile – to point out that there is one another report basing himself on which the Assessing Officer has made an addition. An extract from the report is tabular form are as under:

 Report of the Inspector         Report of the Inspector         Remarks/submissions of
submitted to the                CC-III New Delhi dt.            the appellant
DDIT(Inv.), Delhi dt.           25-7-02, S. Harjinder
19.3.01, Sh. Umesh              Singh, I.A.                     It is worthwhile to mention
Chander, I.A.                                                   here that both these reports
As desired, I visited           As directed, I visited the      have come up before the
1166/202, Kucha                 above mentioned premises        assessee/appellant after the
Mahajani, Chandni Chowk,        on 25/07/2002. This             completion of the asstt.
Delhi, the address              building is a commercial        proceedings against which
mentioned on the summons        complex, consisting of          your appellant is in appeal
dated 7/3/2001. There was       small shop. Each floor has      before your honour. Your
no sign board of this shop      about 6 to 7 shops msg.         appellant is being asked to
which is on the 2nd floor. I    approx. 8' x 10' sq.ft.          submit his reply on both the
met one person by the           Shop No. is given according     report and incidentally the
name of Mukesh Kumar,           to floor i.e. 1st fl. Start      official in charges is the
but he denied that M/s          with 100 likewise. On the 2nd    same. At first instance he
Bishan Chand Mukesh             fl. Shop No. 202 is presently   was the DCIT, Inv. And now
Kumar existed at this           occupied by M/s Aggarwal        the assessing officer of the
premises. He intimated          Bros. I met Sh. Chuni and       party M/s Bishan Chand
that the firm had been          Mahesh, both are                Mukesh Kumar.
dissolved and the firm M/s      employees of M/s
Aggarwal Bros. was              Aggarwal Bros. According
functioning from                this to them, Aggarwal Bros. is
premises. However, he           operating for the last 5
told a person by the name       years. This is a rented
of Umesh to receive the         shop. According to
summons. When I visited         Sh. Chuni, there has never
the above premises again        been any business
on 19.3.01. I met one           establishment in 1166/202
person by the name of           by the name of Sh. Bishan
Rakesh Kumar. He stated         Chand Mukesh Kumar
that he was working for         Saraf. Local inquiry also
M/s Aggarwal Bros. and          revealed the same.
this firm has been
functioning this premises
for the last six months. I
served all the summons and
show cause notice dt.
19.3.01 on this person.
However, the market
inquiry reveals that the
firm M/s Bishan Chand
Mukesh Kumar is still
functioning from this
premises.
Submitted for your kind
perusal.

  

An examination of both the report indicate that they are self-contradictory. Actually now the fact reveal that a search was conducted on the partners of the firm and after the search, the case of the firm, M/s Bishan Chand Mukesh Kumar was centralized. The sale-tax assessment order of the firm at the same address has already been submitted, which even prove that the firm M/s Bishan Chand Mukesh Kumar continued at the same address. The Income Tax Assessment order for the assessment year 1998-99, dated 03.04.2000 also reveals that the firm was very much existing at the same address in April, 2000. A mere fact that the partners of the firm has not tantamount to the presumptions that the sales of jewellery made by your assesses are bogus. Such presumptions against the assessee is not only unjudicious, but also uncalled for under the facts and circumstances of the case. A particular circumstance under which the assessment has been framed by the Assessing Officer on a mere report by the Investigation Wing that the firm is not existent at the address, particularly when now it has been thoroughly located and that the firm is centralized in Central Circle. It does not give any presumption against the assessee that the assessee has made any bogus sale. No such findings has ever been given by the Assessing Officer assessing the firm, M/s Bishan Chand Mukesh Kumar. The existence of the firm is well established, merely because that the Investigation Wing has certain allegations against the firm M/s Bishan Chand Mukesh Kumar, that does not automatically leads to the conclusion that sales made by the assessee appellant to the firm, are also bogus.

It may not be out of place to mention that we have along with our paper book submitted various documents in the nature of confirmations, income tax and sales tax assessment orders etc. of the party. And have also obtained the original signed documents in the nature of copy of account, income tax and sales tax orders etc. of the partner of the firm.

No addition can be made on the basis of presumptions as has been made by the Assessing Officer and the additions, therefore, needs to be deleted and may kindly be deleted.

149. The submissions made on behalf of the assessee, the remand report submitted by the AO and the counter comments made by the assessee in the written reply were examined by the learned CIT(A) in the light of material available on record and on such examination, he recorded the following findings/observations:

i) Though the appellant claimed jewellery to be very old and having sentimental value, the appellant had promptly sold this very jewellery immediately after the date of receipt of VDIS certificate;

ii) Jewellery was sold to unknown party of Delhi i.e. M/s Bishan Chand Mukesh Kumar claimed to have been introduced through a relative of the appellant to whom the appellant was not able to identity;

iii) The appellant handed over jewellery worth Rs. 14 lacs to this unknown jeweller of Delhi without any receipt or without receiving any payment on the delivery of the jewellery;

iv) Although confirmation has been received by the A.O. but the party is not traceable at the address given on the confirmation;

v) All the letters sent by the A.O. through registered post/speed post have not been received back undelivered;

vi) The said party i.e. M/s Bishan Chand Mukesh Kumar, Delhi is stated to be not traceable as per the report of the Inspector, referred to above.

150. On the basis of the above findings/observations recorded by him as well as relying on the reports of the departmental authorities obtained in the case of M/s Bishan Chand Mukesh Kumar, it was held by the learned CIT(A) that the onus that lay on the assessee to prove the genuineness of the sale of jewellery to M/s Bishan Chand Mukesh Kumar could not be said to have been discharged. He also noted that a search operation in the case of Shri Manoj Aggarwal and others was conducted by the department and it was revealed on the basis of evidence found during the course of the said search that the associate concern of M/s Bishan Chand Mukesh Kumar viz. BRMCO was indulging in providing accommodation entries through the various bank accounts opened in different names including the name of M/s Bishan Chand Mukesh Kumar. He also noted that M/s Bishan Chand Mukesh Kumar, Delhi had failed to appear for examination and to give evidence in respect of jewellery claimed to have been purchased from the assessee either during the course of assessment proceedings or even during the course of appellate and remand proceedings and even the assessee had also failed to produce the said party to support and substantiate its claim that the sale of jewellery made to that party was genuine. The learned CIT(A), therefore, upheld the action of the AO in treating the sale of jewellery claimed to be made by the assessee to M/s Bishan Chand Mukesh Kumar as bogus and in adding the proceeds of the said sale amounting to Rs. 16,80,475/- to the total income of the assessee as unexplained cash credit Under Section 68.

151. The learned Counsel for the assessee, at the outset, objected to the addition made by the AO and confirmed by the learned CIT(A) Under Section 68 in the present case treating the sale of jewellery shown by the assessee as bogus relying on the Voluntary Disclosure of Income Scheme, 1997. He submitted that the said jewellery sold by the assessee was declared by it in the declaration filed under VDIS and the declaration so filed was also accepted by the department. In this regard, he invited our attention to the copy of certificate issued by the concerned Commissioner accepting the declaration filed by the assessee under VDIS placed at page No. 13 of his paper book. He contended that the purpose of VDIS as explained in 224 ITR 140 (St.) paragraph 92 was to harness the black money for productive purpose and special treatment in this regard was given to the jewellery by allowing the declarants to adopt the valuation as on 1.4.1987 in respect of jewellery purchased prior to that date. He contended that even the sale of the jewellery declared under VDIS was sought to be encouraged under the scheme as the very purpose of the scheme was to utilize the undisclosed resources for priority sector. In this regard, he relied on Section 6% of VDI Scheme to contend that the sale of jewellery was also embedded in the VDI Scheme itself and having regard to the purpose of the said scheme as well as the provisions of Section 68 of the VDIS, the immunity under the said scheme was also available to the sale of jewellery declared under the scheme. He contended that the certificate issued by the concerned CIT Under Section 68(2) of the Scheme accepting the declaration of the assessee has not been withdrawn and the immunity available under the said scheme in respect of sale of jewellery thus cannot be denied to the assessee.

152. The learned Special Counsel for the Revenue Shri S.D. Kapila, on the other hand, submitted that the immunity under VDIS ends at the stage and to the extent of existence of jewellery and the same is not available in respect of sale of the jewellery declared under VDIS as sought to be claimed by the assessee. He submitted that no doubt special treatment was given to the jewellery by allowing the declarants to adopt the valuation as on 1.4.1987. According to him, the said treatment, however, was given only because of the difficulty in ascertaining or verifying the exact date of acquisition of jewellery as is evident from the clarification issued in the form of questions and answers under VDIS. In this regard, he invited our attention to question No. 16 and answer given thereto to point out that a condition was stipulated in respect of jewellery declared under VDIS to get the valuation done by the approved valuer. He contended that a caution, therefore, was exercised under the scheme in respect of jewellery and it cannot be said that any special treatment was given to the jewellery under the scheme. He also contended that in any case, none of the clauses of VDIS shows that the immunity available under the scheme extends further also to the subsequent sale of the jewellery and such immunity sought to be claimed by the assessee in respect of subsequent sale of jeweller)’ cannot be granted. In support of this contention, Shri Kapila relied on the decision of Hon’ble Andhra Pradesh High Court in the case of Radio Instruments Associates (P) Ltd. v. CIT 166 ITR 718 submitting that the scope and ambit of the VDIS has been explained therein.

153. We have considered the rival submissions and also perused the relevant material on record. It is observed that a similar plea seeking to claim the immunity in respect of sale of jewellery declared under VDIS was raised even on behalf of the interveners and the same has not been found to be acceptable by us for the reasons given us hereinafter. As held by us in this regard, the immunity given by Section 68 of the Finance Act, 1997 incorporating VDIS is limited to the extent that the existence of jewellery stands accepted and the amount credited in the books of the declarant to the extent of value of the jewellery so declared cannot be assessed as income of the declarant for any assessment year under any provision of the Income-tax Act including the provisions of Section 68. This immunity, however, stops there and there is no provision in the scheme to extent the same further, either expressly or even by implication, to cover the sale of jewellery declared under VDIS also. We have -also explained with hypothetical example as to how the VDI Scheme operates in this context and what exactly is the scope of immunity available under it to the declarant. As finally held by us, the AO is not only empowered to go into the genuineness of the transaction of sale of jewellery declared under VDIS, but he is duty bound to do so in order to ensure that the scheme is not misused by the declarants for any more benefits than what were intended to be given under the scheme. In our considered opinion, it is thus open to the department to go into the genuineness of the transactions of sale of jewellery declared under VDIS and examine the same in accordance with the relevant provisions of Income-tax Act.

154. Before we proceed to hear and decide the issues raised in the present case on merits, it is pertinent to note here that three applications, two by the assessee dated 18.8.2005 and 17.11.2007 and one by the Revenue dated 19.1.2006, were filed before the Tribunal under Rule 29 of the Appellate Tribunal Rules, 1963 seeking admission of the following additional evidence:

Application dated 18.8.2005 by the assessee:-

(i) Statement of Shri Bishan Chand Aggarwal of M/s Bishan Chand Mukesh Kumar recorded by the Income Tax Officer, Ward-5(4), Amritsar on l6.5.2005.

Application dated 19.1.2006 by the department:-

1. Copy of Bank account No. 1366 of M/s Bishan Chand Mukesh Kumar in Punjab National Bank, Tunda Talab, Amritsar from which cheques were issued to S. Tejinder Singh (HUF) for the assessment year 1998-99.

2. Statement of Sh. Sudhir Kapoor dated 31.1.2003.

3. Statements of Sh. Sunil Kapoor dated 16.1.2003 and 29.1.2003 who were involved with M/s Bishan Chand Mukesh Kumar in arranging accommodation entries through the bank account No. 1366 of Punjab National, Tunda Talab, Amritsar.

4. Assessment order in the case of M/s Bishan Chand Mukesh Kumar for the block period assessment for the assessment years 1991-92 to 2001-02, passed on 31.12.2004 Under Section 158BC of the Income-tax Act, 1961 by Deputy Commissioner of Income-tax (Central) Circle-Ill, New Delhi.

Application dated 27.11.2007 by the assessee :-

1. Letter of Sh. Sunil Kapoor dated 18.02.03 filed before Income Tax Dept. stating that the statements recorded by DDM-investigation Wing, Amritsar were not correct and were recorded under threat and undue pressure.

2. Letter of Sh. Sudhir Kapoor dated 26.02.03 filed before Income Tax Dept. stating that the statements recorded by DDI-Investigation Wing, Amritsar were not correct and were recorded under threat and undue pressure.

3. Letter of M/s Bishan Chand Mukesh Kumar dated 17.02.05 alongwith affidavit confirming the purchases of jewellery filed before CIT-I, Amritsar.

4. Letter of M/s Bishan Chand Mukesh Kumar dated 17.02.05 alongwith affidavit confirming the purchases of jewellery filed before CIT-II, Amritsar.

155. During the course of hearing, the submissions made by the learned representatives of both the sides on the aforesaid applications were heard by us and after taking the same into consideration as well as all the facts of the case, the additional evidence filed by Revenue as well as assessee under the said applications has been admitted by us as per the order sheet entry dated 17.3.2008 and decision to that effect was also pronounced in the open Court.

156. On merits, the learned Counsel for the assessee submitted that sufficient documentary evidence was placed on record by the assessee before the AO during the course of assessment proceedings itself to prove the sale of jewellery in question to M/s Bishan Chand Mukesh Kumar. In this regard, he invited our attention to the copies of relevant bills issued by M/s Bishan Chand Mukesh Kumar showing purchase of jewellery from the assessee placed at page Nos. 18 to 22 of his paper book. He also invited our attention to the copy of bank statement of the assessee placed at page No. 7 of his paper book to point out that the proceeds of the said sale of jewellery received from M/s Bishan Chand Mukesh Kumar by cheque were deposited in the said account. He submitted that even the confirmation letter of M/s Bishan Chand Mukesh Kumar was also filed by the assessee before the AO during the course of assessment proceedings as mentioned in the assessment order itself. He submitted that the letters/summons stated to be issued by the department to M/s Bishan Chand Mukesh Kumar were never received by the said party and no adverse inference, therefore, could be drawn against the assessee for non-appearance of the said party in response to the said letters/summons. He submitted that even the assessee was not given any specific opportunity for producing the said party during the course of assessment proceedings before the AO. He contended that the primary onus that lay on the assessee in terms of proving the sale of jewellery thus was duly discharged and in the absence of any adverse material brought on record by the AO, there was no reason to treat the said sale as bogus.

157. As regards the reliance placed by the Revenue on the case of M/s Bishan Chand Mukesh Kumar wherein the purchase and sale of jewellery shown by the said party were held to be bogus, the learned Counsel for the asssssee invited our attention to the copy of sales tax assessment order passed in the case of the said concern for the relevant period placed at page No. 138 and 139 of his paper book and pointed out mat the entire purchase and sale of the said party were accepted as genuine by the sales tax authorities. He submitted that the appeal in the case of the said concern is now before this Special Bench wherein the issue about the genuineness of the purchase and sale of jewellery is involved. As regards the reliance of the Revenue on the statements of the concerned persons recorded subsequently filed as additional evidence before the Tribunal, he submitted that no opportunity was given to the assessee to cross-examine the said deponents. He submitted that the said parties have subsequently retracted their statements and their letters/affidavits to this effect have been filed by the assessee as additional evidence before the Tribunal. He contended that if at all the said statements filed by the Revenue as additional evidence are to be taken into account for deciding the issue involved in the assessee’s appeal, the fact that no opportunity was given to the assessee to cross-examine the said deponents as well as their retractions in the form of affidavits also need to be taken into consideration to evaluate the evidentiary value of the documents filed by the Revenue as additional evidence.

158. The learned Special Counsel for the Revenue Shri S.D. Kapila, at the outset, invited our attention to a copy of valuation report placed at page No. 15 of the assessee’s paper book and pointed out the description and valuation of jewellery given therein as declared by the assessee under VDIS. Then he invited our attention to the copies of bills placed at page Nos. 8 to 12 of the assessee’s paper book whereby the said jewellery was claimed to be sold to M/s Bishan Chand Mukesh Kumar and pointed out the deficiencies/discrepancies in the description and valuation of jewellery given therein vis-a-vis that of valuation certificate. For instance, he pointed out that the jewellery sold as per the said bills was stated to be “pure gold ornaments (old)” whereas, according to him, there were no pure gold jewellery available with the assessee as per the valuation certificate. He further pointed out that as per the VDIS declaration, the jewellery was stated to be acquired in the financial year 1985-86 and 86-87 which again was contrary to the mention of the said jewellery as old in the relevant bills. He contended that these discrepancies/deficiencies in the bills issued by M/s Bishan Chand Mukesh Kumar were sufficient to show that the jewellery as declared by the assessee in VDIS was not sold under the said bills and the said bills issued by M/s Bishan Chand Mukesh Kumar were bogus with the only intention to provide accommodation entries to the assessee. He also contended that the jewellery claimed to be sold by the assessee to M/s Bishan Chand Mukesh Kumar under the said bills thus was not the same as declared in VDIS and the said bills were just the bogus bills generated fraudulently to accommodate the assessee. According to him, the said bills, therefore, did not constitute a reliable evidence and the sale of jewellery claimed by the assessee cannot be accepted relying on the said evidence.

159. Shri S.D. Kapila further submitted that the sale consideration of the jewellery from M/s Bishan Chand Mukesh Kumar was stated to be received by the assessee initially by cheques issued by the said party from the Amritsar bank account. He submitted that it was, however, stated by the assessee at other place that the jewellery collected from Amritsar was valued at Delhi. He contended that if the valuation was done subsequently at Delhi, how it was possible to give the cheques for the exact amount of sale consideration at Amritsar while taking the delivery of the jewellery. He submitted that it is also not clear as to whether the bills for sale of jewellery were prepared at Amritsar or Delhi. He contended that the said bills were bearing the signature of Bishan Chand Aggarwal as well as the assessee and if the same were prepared at Amritsar, how Bishan Chand Aggarwal could sign the same especially when he was not present personally while collecting the jewellery. He contended that similarly if the bills are claimed to be prepared at Delhi, how Tejinder Singh, the assessee in the present case, could have signed the said bills especially when he admitted of having not visited the shop of M/s Bishan Chand Mukesh Kumar at Delhi. Referring to a copy of the statement of Shri Bishan Chand Aggarwal placed at page-No,37-of-the-paper-book, he submitted that it was explained by Shri Bishan Chand Aggarwal in his statement that valuation of jewellery was done on estimated basis at Amritsar while taking the jewellery. In this regard, his contention was that what could at the most be possible while taking the jewellery at Amritsar was to weigh the same. It was, however, not possible to ascertain the purity of the jewellery so as to make any estimate of the value of jewellery in order to make the payment. He contended that M/s Bishan Chand Mukesh Kumar thus had clearly conspired with the assessee in making the transaction of bogus sale of jewellery as a part of accommodation and in these circumstances, neither the bills issued by the said concern nor their confirmation could be relied upon to accept the claim of the assessee about the genuineness of sale of the said jewellery.

160. Shri S.D. Kapila submitted that M/s Bishan Chand Mukesh Kumar throughout avoided enquiry by not responding either to the letters or even to the summons issued by the department. He submitted that no enquiry thus could effectively be made from M/s Bishan Chand Mukesh Kumar insofar as the assessee’s case is concerned. He submitted that the statements of the said party, however, have been recorded subsequently during the course of proceedings in the case of other assessees and such statements, being a vital evidence to decide the issue involved in the case of the assessee especially considering the deficiencies/discrepancies in the bills issued by the said party need to be taken into consideration in the substantial interest of justice. He contended that no doubt assessee was not given or could not have been given an opportunity to examine or cross-examine M/s. Bishan Chand Mukesh Kumar with reference to the said statements. He submitted that the manor, however, can be restored to the file of the AO to give such an opportunity to the assessee. He also submitted that it is not very clear as to whether the sales tax assessment order filed at page No. 138 & 139 of the assessee’s paper book was filed before the authorities below and before relying on the said documentary evidence, an opportunity has to be given to the AO to verify the same. As regards the payment of Rs. 39.23 lakhs claimed to be made by M/s Bishan Chand Mukesh Kumar in respect of sale of jewellery, he raised an objection saying that if the gross margin on the sale of entire jewellery was only about Rs. 40 lakhs as claimed by the assessee, how he could pay the sales tax of Rs. 39.23 lakhs on sale of jewellery. He contended that the said amount, if at all paid by M/s Bishan Chand Mukesh Kumar as sales tax, it was nothing but a cost incurred by the said concern in order to show the genuineness of purchase and sale transactions of the jewellery involving nearly 200 crore Rupees which was otherwise bogus. He contended that the reliability of evidence filed by the assessee in the form of sales tax assessment order or sales tax payment challan is required to be seen in the totality of the facts of the case and surrounding circumstances.

161. As regards the statements of Bishan Chand Aggarwal and other concerned persons recorded subsequently from time to time, Shri S.D. Kapila submitted that the said statements are full of contradictions and anomalies especially when they are seen in the light of subsequent retractions. He made an attempt to point out such contradictions and anomalies in the said statements and also pointed out the replies given by Shri Bishan Chand Aggarwal to certain specific questions which, according to Shri Kapila, were quite evasive. Me contended that this evidence thus needs to be reconsidered and reappreciated for deciding the issue involved in the assessee’s case about the genuineness of the sale of jewellery and for doing this entire exercise, the matter needs to go back to the Assessing Officer. He submitted that this will also facilitate in giving an opportunity to the assessee to cross-examine the deponents so that a proper conclusion can be reached. In support of this contention, he has relied on the decision of Delhi Bench of ITAT in the case of UOPLLC 108 ITD 186 wherein it was held that the voluminous evidence coming to the possession of the department after completion of the assessment having been admitted as additional evidence, the matter has to go back to the AO to evaluate the said evidence and decide the said matter afresh.

162. In the rejoinder, the learned Counsel for the assessee strongly opposed the case sought to be made out by Shri Kapila for restoring the matter to the file of the AO for reconsideration. He submitted that second innings cannot be given to the AO especially when assessee has already suffered for more than ten years. He further submitted that it is not a case of the Revenue that assessee is still possessing the jewellery declared under VDIS and if at all the sale of the jewellery as claimed by the assessee is bogus as sought to be alleged by the department, the question that arises is where the said jewellery has gone. As regards the alleged discrepancies/deficiencies pointed out by Shri Kapila in the bills issued by M/s Bishan Chand Mukesh Kumar, he submitted that no such defects have been pointed out by the department at any stage and it is, therefore, not open to the Revenue at this stage to make out a new case. He then made an attempt to explain and clarify each and every discrepancy/deficiency allegedly pointed out by Shri Kapila in the said bills by making a detailed submission in this regard. Relying on the said submissions, he submitted that the objections raised by Shri Kapila thus are based on mere guess work and surmises and the same are not sufficient to controvert the documentary evidence produced by the assessee in the form of the said bills. He also contended that although there are certain variations in the description of jewellery given in the said bills, the same are due to clerical mistakes and as the price is paid on the basis of weight which is tallying, such variations ore neither material nor relevant to ignore the evidentiary value of the said bills. He submitted that the jewellery in question was sold by the assessee not through any agent but directly to the representative of M/s Bishan Chand Mukesh Kumar who had come to Amritsar as clearly stated by the assessee in his statement. He contended that the case of the assessee about the genuineness of sale of jewellery thus is based on cogent evidence and the test of human probability cannot be applied to draw an adverse inference against the assessee as sought by the learned DR. He also explained the manner in which the sale of jewellery was effected by the assessee to M/s Bishan Chand Mukesh Kumar by pointing out the sequence of events involved in the transaction. In this regard, he submitted that the purchase executive of M/s Bishan Chand Mukesh Kumar had visited Amritsar and inspected jewellery and the same was handed over by the assessee to the said executive after obtaining kachi receipt from him. He submitted that the said jewellery was finally inspected and evaluated at Delhi by M/s Bishan Chand Mukesh Kumar and” the final bill/voucher was issued by the said concern which was signed by the assessee on the receipt of the same at his end. As regards the objection of Shri Kapila about the substantial payment of Rs. 39.23 lakhs on account of sales tax by M/s Bishan Chand Mukesh Kumar from the profit of Rs. 40 lakhs, he submitted that the sales tax being an indirect tax was liable to be recovered from the customers and the same, therefore, could not have any bearing on the profitability of the said concern.

163. We have considered the rival submissions and also perused the relevant material available on record and judicial pronouncements cited at the bar. It is observed that the jewellery declared under VDIS was claimed to be sold by the assessee to M/s Bishan Chand Mukesh Kumar during the year under appeal and the said claim was sought to be examined by the AO during the course of assessment proceedings. In this regard, the following evidence was filed by the assessee in order to establish the genuineness of the transaction of sale of jewellery to M/s Bishan Chand Mukesh Kumar:

(i) A confirmation letter of M/s Bishan Chand Mukesh Kumar giving all the relevant details including its PAN/GIR No. Ward No. etc.

(ii) A copy of bank statement showing that the proceeds for sale of jewellery have been received by account payee cheques from M/s Bishan Chand Mukesh Kumar.

(iii) Copies of vouchers/bills issued by M/s Bishan Chand Mukesh Kumar in respect of jewellery purchased from the assessee.

(iv) Copies of declaration filed under VDIS alongwith the valuation report of the jewellery and the certificate issued by the concerned CIT, Amritsar accepting the said declaration.

164. In his statement recorded by the AO during the course of assessment proceedings, the manner in which the jewellery was sold to M/s Bishan Chand Mukesh Kumar was explained by the assessee and the reason for making the sale of jewellery to a Delhi-based concern i.e. M/s Bishan Chand Mukesh Kumar was also explained by the assessee. Despite these depositions made by the assessee and the relevant documentary evidence produced by him in support of his claim of having sold the jewellery to M/s Bishan Chand Mukesh Kumar, the Assessing Officer treated the said sale as bogus mainly because M/s Bishan Chand Mukesh Kumar did not respond to the letters/summons issued by him and the Inspector deputed to visit the said concern could not trace it at the address given. As mentioned by the AO in the assessment order, no further enquiry, however, could be conducted by him in spite of the confirmation received from the said concern as the assessment was getting barred by limitation which he finally completed vide an order dated 27.3.2001. Taking note of this vital aspect of the matter and keeping in view the submissions made on behalf of the assessee before him, the learned CIT(A) sought a remand report from the AO. While seeking the said report, he directed the AO to make all the necessary enquiries in the matter and also to confront the assessee with all the material collected by him. Accordingly, enquiries were made by the AO with the Assessing Officer of M/s Bishan Chand Mukesh Kumar i.e. Deputy CIT, Central Circle-3, New Delhi who informed in his report that in pursuance of a search operation conducted, infer alia, in the case of Shri Bishan Chand Aggarwal, partner of M/s Bishan Chand Mukesh Kumar, the case of M/s Bishan Chand Mukesh Kumar has been recommended for initiating proceedings Under Section 158BD. He also informed in his report that in-depth and detailed investigation was required to be done in order to verify the genuineness of purchase and sale of jewellery claimed to have been made by the said concern which might take some time. He, however, informed that the block assessment proceedings in the case of M/s BEMCO Jewellers Pvt. Ltd. wherein Shri Bishan Chand Aggarwal was a director have already been completed in August, 2002 and the transactions of the said concern of purchase and sale of jewellery have been held to be bogus in the said assessment. These contents of the report sent by DCIT, Central Circle 3, New Delhi alongwith the report of the Inspector who was deputed to visit the shop of M/s Bishan Chand Mukesh Kumar incorporated by the AO in his remand report and a comment was given on the basis thereof that the transactions of M/s Bishan Chand Mukesh Kumar were also apparently bogus. Relying mainly on the said remand report submitted by the AO, the claim of the assessee of having sold the jewellery to M/s Bishan Chand Mukesh Kumar was held to be bogus by the learned CIT(A),

165. All these facts narrated above clearly show that the matter regarding genuineness of transactions of purchase and sale of jewellery by M/s Bishan Chand Mukesh Kumar was still under investigation/examination by the department and the same had not reached finality till the impugned order in the case of Tejinder Singh, HUF, i.e. assessee in the present case came to be passed by the learned CIT(A). Keeping in view the relevancy of the outcome in the case of M/s Bishan Chand Mukesh Kumar wherein the genuineness of the transaction relating to purchase of jewellery claimed to be sold by the assessee was also under in-depth and detailed investigation at the relevant time and the finalization of the same subsequently with the Assessing Officer as well as learned CIT(A) taking a view against the assessee by holding the relevant transactions as bogus, Shri S.D. Kapila, Special Counsel for the Revenue, has filed the assessment order passed in the case of M/s Bishan Chand Mukesh Kumar as well as some other relevant documents such as copy of bank statement of M/s Bishan Chand Mukesh Kumar and statements of Sudhir Kumar and Sushil Kumar, mediators allegedly involved in arranging accommodation entries as additional evidence before the Tribunal which has been admitted. Thereafter, he also made a request on behalf of the Revenue for clubbing the appeals filed in the case of M/s Bishan Chand Mukesh Kumar and Shri Manoj Aggarwal/Bemco with the appeal of the assessee for the consideration of this Special Bench which has been acceded to keeping in view that an in-depth and detailed investigation has been done in the said cases to ascertain the genuineness of the transactions of purchase and sale of jewellery and the final outcome of the said cases will be relevant to decide the issue involved in the appeal of the assessee.

166. After hearing the arguments of the learned representatives of all the sides in these cases, we felt that it would be appropriate to consider and decide the appeals filed in the case of M/s Bishan Chand Mukesh Kumar and Shri Manoj Aggarwal Bemco Jewellers first as the issue relating to genuineness of the transactions of purchase and sale of jewellery in the said cases have been investigated in detail and the decision thereon will have a direct bearing on the ultimate fate of the case of the assessee i.e. Tejinder Singh, HUF. Accordingly, the appeals filed in the case of M/s Bishan Chand Mukesh Kumar have already been disposed of by us in the foregoing portion of this order wherein the assessment made Under Section 158BC read with Section 158BD has been held to be bad in law on the grounds and for the reasons set out therein. Consequently, the said assessment made in the case of M/s Bishan Chand Mukesh Kumar has been quashed by us holding the same to be invalid and keeping in view this decision on the preliminary legal issues, we have refrained ourselves from considering and deciding the other issues involved in the said case on merits including the issue relating to genuineness of the transactions of purchase and sale of jewellery. Assuming the possibility of such an eventuality and keeping in view that the material collected during the course of assessment proceedings in the case of M/s Bishan Chand Mukesh Kumar, which has already been filed and admitted as additional evidence in the case of Tejinder Singh, HUF, can still be utilized, Shri S.D. Kapila has urged that the case of Shri Tejinder Singh should be restored to the file of the Assessing Officer to consider and decide the same afresh in the light of the said additional evidence. He has submitted that this will also facilitate in giving an opportunity to the assessee to cross-examine the deponents whose statements have been sought to be relied upon by the department and also to rely upon the letters/affidavits of the said deponents which have been filed by him and admitted by the Tribunal as additional evidence. He has contended that this will enable the Assessing Officer to reach a proper conclusion after taking into consideration this entire evidence which has been gathered after the completion of assessment in the case of Tejinder Singh, HUF and which is relevant to decide the issues involved in the said case. Although this plea of Shri S.D. Kapila sounds to be logical and legally tenable, we find it difficult to accept the same in view of our decision rendered in the cases of Shri Manoj Aggarwal and Bemco in the foregoing portion of this order. It is no doubt true that the jewellery by Tejinder Singh, HUF was sold to M/s Bishan Chand Mukesh Kumar and the issue about the genuineness of the transactions of purchase and sale of jewellery by M/s Bishan Chand Mukesh Kumar including the purchase of jewellery from the assessee has not been considered and decided by us on merits. However, a similar issue involved in the case of Bemco/Manoj Aggarwal has been considered and decided by us on merits. In the said cases, the facts involved were almost similar to the facts involved in the case of M/s Bishan Chand Mukesh Kumar inasmuch as the transactions relating to purchase and sale of jewellery were held to be bogus by the department alleging that such transactions were entered into in order to give accommodation entries on commission basis. This allegation was based on the similar type and nature of evidence collected by the department and the modus operandi allegedly followed by Bemco/Manoj Aggarwal was the same as alleged to be followed by M/s Bishan Chand Mukesh Kumar while giving accommodation entries \n the form of bogus sales entries of jewellery. The case sought to be made out by the department about the alleged bogus purchase and sale of jewellery transactions on the basis of similar nature of evidence has been examined by us in detail and on such examination, we have held that the evidence collected by the revenue authorities was not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus and the same were put through by accommodation entries in order to earn commission income therefrom. We have found it difficult to reject the assessee’s plea about the genuineness of the jewellery transactions as opposed to the normal course of human conduct even applying the principles laid down by the Hon’ble Supreme Court in the cases of Durga Prasad More (supra) and Sumati Dayal (supra). We have also found that the circumstances surrounding the case were not strong enough to hold the claim of the assessee about genuineness of the jewellery transactions as totally unbelievable or outrageous. We have also found that no evidence of any consequence was unearthed during the course of search to directly show that the jewellery business was bogus and that it was only accommodation entry business. On the other hand, the evidence brought on record by the assessee especially the evidence in the form of sales lax assessment order wherein the transactions of purchase and sale of jewellery were accepted by the Sales-tax authorities was found to be reliable by us to support the case of the assessee that the relevant transactions of purchase and sale of jewellery were genuine. As the issue-involved in the case of Bemco/Manoj Aggarwal as well as all the material facts relevant thereto including the evidence brought on record are similar to the case of M/s Bishan Chand Mukesh Kumar, we are of the view that the decision rendered in the case of Bemco/Manoj Kumar on the said issue is applicable even in the case of M/s Bishan Chand Mukesh Kumar with equal force and this being so, no meaningful purpose will be saved by sending the matter back to the AO for reconsideration and re-decision merely because the issue has not been decided on merits in the case of M/s Bishan Chand Mukesh Kumar. In our opinion, this exercise would prove to be merely academic and it would result only in multiplicity of litigation. In that view of the matter and keeping in view the reasons given above, we do not find any justifiable reason to send this matter to the Assessing Officer for reconsideration as sought by Shri Kapila and following our conclusion drawn in the case of Bemco/Manoj Aggarwal, we hold that the transaction relating to sale of jewellery in the case of the present assessee i.e. Tejinder Singh, HUF is genuine. Accordingly, we delete the addition made by the Assessing Officer and confirmed by the CIT (Appeals) under Section 68 and allow this appeal of the assessee.

CASES OF INTERVENERS:

DIVYA KAPOOR:

167. Mr. Sudarshan Kapoor, learned Counsel for the intervened Divya Kapoor, addressed legal arguments. According to him, Section 68 of the Income tax Act is a deeming provision and is not applicable where the gold or jewellery is part of the assets of the assessee for which an entry has been made in the books of account in accordance with the VDIS. He contended that when the entry is made in the books of account after the declaration under the VDIS, it is at that lime Section 68, if at all, can be invoked and once that stage is crossed and the section has worked itself out, it cannot again be invoked when the gold or jewellery declared under the VDIS is sold and the sale proceeds are credited in the books of account. His further argument was that the entry itself is proof of sale of the gold or jewellery already declared under the VDIS since it is already part of the balance sheet of the assessee-declarant and no further proof of sale can be insisted upon.

SURAKSHA AND SUNIL CHAWLA:

168. Mr. Baljit Singh, learned Counsel for these interveners put forth the following submissions. He first contended that the sale was disclosed and assessed in the normal assessment and when the jewellery was not found in the course of the search conducted under Section 132, it must be taken that the sale of the jewellery has been proved. Alternatively, it was contended that the course open to the Assessing Officer, if at all, was to reopen the assessment earlier completed by issue of notice under Section 148. He also contended that Section 68 is not applicable to the case of the intervenes who do not maintain any books of account and the entry is found only in the bank passbook which cannot be equated to books of account of the assessee.

169. In support of his submissions, the learned Counsel relied on the judgment of the Supreme Court in CIT v. P. Mohana Kala 291 ITR 278, that of the Madras High Court in CIT v. Taj Borewells and the order of the Bangalore Bench of the Tribunal in DCIT v. Rajan Udayashankar (2000) 7 SOT 680.

MRS. SUMAN MEHRA, RISHI GROVER & PAWAN KUMAR CHOPRA:

170. Mr. Ajay Vohra, the learned Counsel for the above assessees put forth the following submissions:

(a) The gross receipts viz., the sale proceeds of the jewellery, cannot be taxed under Section 68 treating them as undisclosed income of the assessee.

(b) It is not a case of cash credit simplicitor because the assessee has shown the sale proceeds as giving rise to capital gains and the same has been offered for tax. Therefore, Section 68 cannot be invoked.

(c) The sale proceeds of the jewellery cannot be treated as “some credited” so as to attract the Section.

(d) Section 68 will not apply to transactions which are of income nature.

(e) It is for the department to prove that the money came from the assessee himself in the guise of a cash credit and that such moneys were unaccounted moneys. If that proof is lacking, Section 68 is not applicable.

(f) It is for the department to prove that the apparent is not the real state of affairs as held by the Supreme Court in the case of CIT v. Daulatram Rawatmal 87 ITR 349. In the present case, it is the department’s case that the moneys have moved from the assessee himself and have appeared as sale proceeds of jewellery. It is for the department, therefore, to prove that the moneys were unaccounted moneys and they moved from the assessee and were brought in as sale proceeds of jewellery. It is only where Section 68 applies that the burden is on the assessee to prove the nature and source of the credit. The distinction between the two has to be appreciated and given effect to.

Mr. Vohra submitted that the judgment of the Supreme Court in the case of Govindrajulu Mudaliar v. CIT (1958) 34 ITR 801 is not applicable to the present dispute for the reason that in the cited case, the transactions were not of income nature. That was a case of cash credit simplicitor where it is not for the department to point out the source from which the assessee might have received the moneys and it was for the assessee to show the nature and source of the credit. Mr. Vohra was at pains to explain that in the present case, the cash received by the assessee represented income in the sense that they gave rise to capital gains and to such a situation, the cited judgment does not apply. In support of these submissions, he relied on the following:

(i) CIT v. Pancham Dass Jain 205 CTR 444 (Allahabad).

(ii) Smt. Harshila Chordia v. ITO 208 CTR 208 (Rajasthan).

(iii) Smt. R. Imbavalli v. ITO (2004) 83 TTJ 352 (Chennai Bench).

Turning to the facts of the present case, Mr. Vohra pointed out that the assessee’s sale of jewellery to Uma Shankar Kamal Narain and S.R. Jewellery of Delhi were accepted as genuine, whereas the sale of jewellery to Bishan Chand Mukesh Kumar was not accepted as genuine though this sale was also similar to the other two sales. He submitted that the brokers have confirmed the sales. It was submitted that the assessee has discharged the burden even under Section 68 of the Act and thereafter, the burden shifted to the department which has not discharged the same. He pointed out that the departmental authorities have relied on statements recorded by the ADI in December, 2002 from the brokers after the search and such statements cannot be used in the assessment. It was pointed out that in any case, the statements were retracted on 18.2.2003 and these persons even appeared before the Assessing Officer and confirmed their retractions. It was argued that in these circumstances, it was for the department to prove the movement of money from the assessee to the alleged entry provider and for this proposition, reliance was placed on the judgment of the Delhi High Court in CIT v. Divine Leasing and Finance Limited (2007) 207 CTR 38. Reliance was also placed on the judgment of the Supreme Court in CIT, Orissa v. Orissa Corporation Limited 159 ITR 78 where it was held that if the assessee has clone everything within his powers and the department has not done anything which it could have done such as verification of the assessment records, then no addition under Section 68 can be made.

171. Mr. Vohra further contended that in proceedings under Section 147, the confession of the creditor cannot be taken to be conclusive and it cannot be the basis for the belief held that income chargeable to tax had escaped assessment. Reliance was placed on the following decisions in support of this contention:

(a) Lakmani Mewaldas 103 ITR 437 (SC).

(b) S.P. Agarwalla alias Sukhdeo Prasad Agarwalia v. ITO 140 ITR 1010 (Cal.).

(c) Kirpa Ram Ramji Dass v. ITO 135 ITR 68 (P&.H).

(d) United Electrical Co. P. Ltd. v. CIT and Ors. 258 ITR 317 (Del).

(e) V.C. Shukla .

(f) Nazi Amir Mohd. Mir Ahmed v. CIT, Amritsar 110 ITR 630 (P&H).

The learned Counsel for the assessee has also filed the compilation of the case law.

172. Mr. Kapila, the learned Special Counsel for the Income-tax Department put forth the following contentions:

(a) The decisions rendered under other Acts cannot automatically be applied to the Income-tax Act irrespective of the nature and language of the provisions.

(b) The case of the department rested squarely on Section 68 of the Income-tax Act. If the sale of the jewellery is not proved, the result would be that there would be no capital gains under Section 45. Nevertheless, the sale proceeds shown in the books of the assessee will have to be dealt with under Section 68 only.

(c) It is for the assesses to prove the genuineness of the sale and the nature and source of the receipt. The assessee cannot escape liability by merely saying that this is not a case of cash credit simplicitor to be dealt with under Section 68, but was a case where the sale proceeds are shown as income by way of capital gains. One has to look at the substance of the transaction and not merely the form it takes.

(d) Section 68 does not require the Assessing Officer to prove that the money emanated from the assessee. The very fact that the assessee was in receipt of moneys, allegedly by way of sale proceeds of jewellery, puts the burden on the assessee. The case of Daulat Ram Rawat Mal (supra) is not a case arising under Section 68 of the Act. (c) The statements given by the brokers before the ADI, Amritsar can be used in evidence against the assessee even if it is assumed for the sake of argument that he had no jurisdiction to take such statements on the ground that Bishan Chand Mukesh Kumar, the purchaser of the jewellery, was located in Delhi.

(f) The so-called brokers who appeared before the Assessing Officer to confirm the sale to Bishan Chand Mukesh Kumar were not shown to have been paid any commission by that firm.

On the basis of the above Kapila pleaded that the sale of jewellery was not proved.

173. In reply. Mr. Vohra, the learned Counsel for the assessee, besides reiterating his earlier submissions, contended that the statements of the brokers given before the ADI, Amritsar were in the context of action already taken by the department whereas under Section 131(1A), some action should have followed the recording of the statements. He contended, in answer to Mr. Kapila’s contention, that the brokers were not paid any commission for putting through the sale of jewellery to Bishan Chand Mukesh Kumar, that non-payment of commission is irrelevant and what is important is the fact that the brokers appeared before the Assessing Officer and confirmed the transactions.

174. Arguments were also addressed before us on behalf of Tejinder Singh (HUF) on the above aspect. In this case, a specific ground has been raised to the effect that the addition made by the Assessing Officer by invoking the provisions of Section 68 of the Income-tax Act are unwarranted and uncalled for in the facts and circumstances of the case. The facts relating to this appeal have been already discussed elsewhere in this order and while doing so we had remarked that the argument questioning the applicability of Section 68 will be dealt with in the appropriate place. We consider it to be appropriate to discuss the argument here since the main argument of the interveners was also that Section 68 cannot be invoked for making the additions. Mr. Salil Kapoor, learned Counsel appearing for Tejinder Singh (HUF) contended that the amount credited as sale proceeds of jewellery in the books of the assessee cannot be treated at par with cash credits, an argument which was also addressed by Mr. Vohra, learned Counsel for the intervener, Mrs. Suman Mehra. His further arguments were as follows:

He contended that it is not a case of loan or gift where the onus is more heavy on the assessee, but it is a transaction of sale where the assets which is individually owned by the assessee and income arising out of the said sale transaction declared by the assessee in its regular returns is sold and sale realization is credited in the books of accounts. In respect of such transaction of sale, the onus has been duly discharged by the assesses by proving the following:

a) Jewellery was in existence which is sold by the assessee and he is the owner of the same prior to its sale.

b) Sale of jewellery is by account payee cheques and the money has come to the account of the assessee from the account of the purchaser.

c) Purchase bills of jewellery are produced and the said sale transaction is confirmed by the purchaser.

d) The purchaser is an existing person who is registered with Sales-lax Authority and has filed its sale-tax and income-tax returns.

e) The partner of BCMK has appeared before Income-tax Authorities and confirmed the purchase of jewellery from the assessee.

The learned Counsel further contended that if the explanation of the assessee shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it is income. If however, the explanation is unconvincing and once it deserves to be rejected, the department can reject and draw the inference that the amount represents income either from source already disclosed by the assessee or from some undisclosed sources. The department cannot by merely rejecting unreasonably a good explanation convert good proof into no proof. The learned AR further contended that sale proceeds of any declared capital assets has to be treated as capital receipts subject to capital gains tax.

175. On the other hand, the contention of the learned special counsel for the income-tax department was that VDIS of 1997 provides immunity to the declarant in respect of source of acquisition of jewellery declared and accepted by the Commissioner, any subsequent transaction involving disposal of such jewellery is distinct and independent transaction involving acquisition of the jewellery. As per learned DR, the assessee is required to prove a receipt or a credit in his account as per provisions of Section 68 and 69 of the Act. If his explanation is that the receipt is on account of sale of immoveable assets (whether or not covered by VDIS) hitherto owned by him, the burden of proof is on him to prove the factum of sale. He placed reliance on the decision of Hon’ble Supreme Court in case of CIT v. Mohan Kala 291 ITR 278, in support of the proposition that money came by way of bank cheques and was paid through process of banking transaction was not by itself of any consequence.

176. Under these facts and circumstances, the question arises as to whether the provisions of Section 6S pertaining to cash credits were correctly invoked by the Assessing Officer. In Chapter VI of I.T. Act, under the heading “Cash Credits” provisions of Section 68 stipulates that if any sum is found credited in the books of accounts of the assessee maintained for any previous year and the assessee either offers no explanation about the nature and source thereof, or his explanation, in the opinion of Assessing Officer, is not satisfactory, then, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. As the heading of Section 68 viz “cash credits”, itself suggests that it is applicable with reference to the cash credits brought in by the assessee by making entry in the books of account. However in the transaction of sale of such declared jewellery, the amount so credited in the books of accounts at the time of sale is partly attributable to the cost of assets and partly attributable to profit on sale. The cost part of such assets have already suffered tax at the rate of 30% at the time of declaration thereof under VDIS, and the profit part is being liable to tax at the time of sale of such assets, as per provisions of capital gains tax contained under part ‘E’ of Chapter IV of I.T. Act. Thus, the amount so credited as capital receipt liable to tax as capital gains cannot be strictly put at par with cash credits under Section 68 of the Act, according to the learned Counsel.

177. We have carefully considered the arguments of both the sides. We are unable to subscribe to the contention of Mr. Sudershan Kapoor, the learned Counsel for one of the interveners that where an entry has been made in the books of account of the assessee as required by the VDIS of 1997, Section 68 cannot be invoked when the declared asset is sold later and the sale proceeds are credited in the books of account. Section 68 of Chapter IV of the Finance Act, 1997, which provided for the voluntary disclosure of income scheme, 1997, says that the amount of the voluntary disclosed income will not be included in the total income of the declarant of any assessment year if certain conditions are satisfied. One such condition is that the declarant should have credited the amount in the books of account, if any, maintained by him for any source of income or in any other record and should have intimated the credit so made to the Assessing Officer. This is an enabling provision. It enables the hitherto undisclosed income to be brought into the accounts of the assessee as disclosed income since tax thereon has been paid under the VDIS. Once the tax is paid on the undisclosed income, it becomes disclosed income and thereafter there is no justification for denying the assessee the facility of bringing the declared income into account. In the cases of the intervenes who are all declarants under the VDIS, 1997, this condition has been satisfied and there is no dispute about the same. The immunity given by Section 68 of the Finance Act, 1997, is limited to this, that the declared income will not be assessed again as the income of the declarant for any assessment year under the Income-tax Act. Obviously the only provision, which the Assessing Officer can invoke for assessing the amount credited in the books of account, is Section 68 of the Income-tax Act, but by virtue of Section 68 of the Finance Act, 1997, the applicability of Section 68 of the Income-tax Act to the amount declared under the VDIS is ruled out. But the immunity stops there. When the asset representing the declared income or acquired out of the declared income is later sold, the powers of the Assessing Officer to examine the question whether there has been a real sale of the asset is not curtailed in any manner by any of the provisions of the VDIS, 1997. Supposing, to give an example, an assessee files a declaration under the VDIS that he had acquired gold bars for Rs. 5 lacs out of his undisclosed income. He is required to credit his books of account with Rs. 5 lacs as required by Section 68 of the Finance Act, 1997, in addition to paying the tax thereon at concessional rates under the VDIS. Once the amount is credited the same cannot be taxed again for any assessment year under the provisions of the Income-tax Act, 1961. Supposing, the assessee in the example credits the hooks of account with the amount of Rs. 5 lacs as on 31.12.1997, the Assessing Officer making his assessment for the assessment year 1998-99 cannot invoke Section 68 of the Income-tax Act to assess the amount again. However, when the gold bars are sold by the assessee at any time later, say for Rs. 8 lacs, and the amount of Rs. 8 lacs is received by the assessee and credited by him in his books of account there seems to be no bar on the Assessing Officer from examining the question whether there was real and actual sale of the gold bars which fetched Rs. 8 lacs to the assessee. Such a power has not been either expressly or by implication taken away from the Assessing Officer. Such a power may be exercised by the Assessing Officer to ensure that the provisions of the VDIS, 1997 have not been misused by an assessee. In the example given earlier, suppose that the assessee had falsely declared under the VDIS that he had acquired gold bars out of his undisclosed income of Rs. 5 lacs. He pays tax under the scheme at concessional rates, pays no interest or penalty. There are actually no gold bars in existence. After the VDIS comes to an end. he falsely claims that he has sold the gold bars for Rs. 8 lacs and brings the same to account. He may be no doubt paying capital gains tax on the surplus but by doing so he will be bringing into account a sum of Rs. 3 lacs which are his own undisclosed monies. This would be abuse of the VDIS, 1997. It is to prevent this that the Assessing Officer examining the case of the assessee in the year of sale of the gold bars should be given the power to probe whether the gold bars were really sold. It is true that the existence of the gold bars with the assessee cannot be questioned because of the acceptance of the declaration made under the VDIS and issue of a certificate by the CIT. But it is certainly open to the income-tax authorities to require the assessee to prove that the gold bars were actually sold. Such proof may include details of the purchaser, his credentials, evidence in the form of bills, etc. It is also open to the income-tax authorities to examine such proof in the manner authorized by law and come to the conclusion whether the sale is genuine or not. While doing so, the Assessing Officer may rely on Section 68 of the Income-tax Act.

178. Mr. Ajay Vohra, learned Counsel for one of the interveners contested the aforesaid position by submitting that the sale proceeds credited in the books cannot be treated as cash credit simplicitor so as to enable the Assessing Officer to invoke Section 68. He says that the sale proceeds have been shown as income in the sense that after deducing the cost of the asset from the sale proceeds, the balance has been declared as capital gains and therefore the sale proceeds cannot be probed under Section 68 and the assessee cannot be asked to prove the nature and source of the monies. His further submission is that in the cases before us, it is the department which says that the sale proceeds are in truth undisclosed income of the assessee and they have moved from the assessee and have been brought back as sale proceeds and, therefore, it is for the Assessing Officer to adduce evidence to show that the monies have emanated from the assessee. He contends that the apparent should be taken as the real state of affairs and if the department questions the same it is for them to prove that the apparent is not the real. Though prima facie the argument seems to be attractive, we are afraid that it cannot bear closer scrutiny. Section .68 of the Income-tax Act only gives statutory recognition to the well-settled position that any monies found credited in the accounts of the assessee have to be proved by the assessee in relation to their nature and source. It does not enact any new principle. Even long prior to the introduction of the section, courts had held that any amounts found credited in the books of the assessee and the assessee offered no explanation about the nature and source thereof or the explanation offered was not satisfactory, the amounts so credited could be charged to income-tax as income of the assessee. Reference in this connection may be made to three judgements of the Supreme Court : (1) Govindrajulu Mudaliar v. CIT , (2) Lakhmi Chand Baijnath v. CIT and (3) CIT v. Devi Prasad Viswanath Prasad . Reference may also be made to the judgement of the Delhi High Court in Yadu Hari Dalmia v. CIT . In this decision, it was observed by the Division Bench of High Court presided over by Hon’ble Justice S. Ranganathan (as His Lordship then was) at page 57 that Section 68 was inserted “only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions”. At page 58, it was observed by the court as under:

We are, therefore, of opinion that the whole history of the introduction of Sections 68 to 69D and the judicial decisions bearing thereupon clearly establish the proposition that these sections are only clarificatory and that even otherwise an addition can be made towards income form undisclosed sources in respect, inter alia, of amounts of expenditure which the assessee is found to have actually incurred but not satisfactorily explained.

The argument that Section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account cannot be accepted having regard to the settled legal position that it is always for the assessee to explain the nature and source of the sums credited in his books of account. The section does not recognize any distinction between amounts credited in the books as gifts or loans or pure receipts, on the one hand, and amounts credited as sale proceeds. In either case, when called upon, the assessee is bound to explain the nature and source of the amounts credited. There may be a few exceptions to this general rule. For example, in the case of credit purchases, the account of the supplier is credited with the amount payable. In such a case, where the purchase is allowed as expenditure, it may not be possible for the Assessing Officer to again call upon the assessee to prove the nature and source of the credit, for the reason that the purchase itself was allowed as expenditure only on being satisfied that it was a genuine purchase on credit. Implicitly, the nature and source of the amount credited has also to be taken as having been explained satisfactorily. Another possible argument can be that in such a case, the amount credited is not a cash credit in the sense that some monies have been received by the assessee. but the credit represents a mere liability payable by the assessee in future. Under accounting principles, a liability can only be brought into account by making a credit entry in the books of account in favour of the person to whom the money is payable. Thus, there is marked difference between a credit representing a liability payable by the assessee and a credit representing monies received from another person. It is because of this distinction, a liability for purchase which has been credited in the account of the supplier cannot be added under Section 68 of the Act, more so when the purchase has been accepted as genuine and a deduction therefor has been allowed. In all other cases including the case of a credit representing the sale proceeds of an asset, the provisions of Section 68 are applicable and it is for the assessee to prove satisfactorily the nature and source of the monies. What happens in a case of sale of jewellery, as in the cases of the declarants before us, is that the assessee says that the credit represents receipt of sale proceeds. The department however disputes this and merely calls upon the assessee to prove the nature and source of the monies, invoking Section 68. At that stage, it is not the case of the department that the monies have emanated from the assessee himself and have come back to him in the guise of sale proceeds. The assessees (declarants under the VDIS) lead evidence to show that the sale of the asset is genuine and that the sale proceeds credited in their books of account stand proved. What the department does is to reject the evidence as not acceptable, for reasons given by them, or to lead evidence to contradict the evidence adduced by the declarants. But all this is only in the realm and dispensation of Section 6$. It is well-settled that under Section 68 the burden keeps shifting from one side to the other depending upon the evidence adduced. But all that the departmental authorities are called upon to do is to prove that the explanation of the assessee with regard to the nature and source of the sale proceeds or the evidence adduced by the assessee in support of the explanation is not acceptable. They are under no duty to lead evidence to show that the monies shown as sale proceeds-represent the undisclosed income of the assessee brought into the books in the guise of sale proceeds. To hold to the contrary will not only amount to not giving effect to tin: ruling of the Supreme Court in Govindarajulu Mudaliar’s case and the well-settled legal position recognised by several courts as one of the fundamentals of the income-tax law but also to turning the law upside down. Therefore, as a proposition of law it cannot certainly be accepted that Section 68 is not applicable to such cases. But in the application of the section, courts have laid down broad guidelines as to how to judge or evaluate the evidence, when can an assessee be said to have discharged his burden, when the burden shifts to the department and so on. For instance in the case of CIT v. P.K. Noorjehan the Supreme Court has noted that the use of the word “may” in Section 69, as against the word “shall” used in the section as originally introduced in the Parliament, shows that the section confers a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee. It was held that where there was an inherent improbability of a young lady of 20 years of age having any unexplained or undisclosed income to be utilised in the purchase of land and that in such circumstances her explanation that she acquired the land out of the monies left to her by her mother’s first husband was rightly accepted by the Tribunal. Section 68 also uses the word “may” and not “shall” and belongs to a group of similar sections providing for deemed income. These guidelines laid down in the decided cases have no doubt to be kept in mind while applying Section 68, but the applicability of the section cannot be ruled out and the burden be thrown on the department even in the first instance. The principle that the apparent shall be accepted to be the real until some evidence showing otherwise is unearthed is a rule of evidence applicable while appreciating a state of affairs or an explanation put forth by parties or while appreciating a set of circumstances or facts brought before the court. The principle will no doubt apply while evaluating the evidence adduced under Section 68, but it cannot rule out the applicability of the section. That principle is of universal ‘application, not only under the Income-tax Act, but also under all enactments under which the court is required to evaluate the evidence or judge a set of facts or circumstances or explanation put forth by the parties.

179. The entire question under Section 68 of the Act as it is applied to the cases before us is whether the assessee has succeeded in proving that the sale of jewellery declared earlier under the VDIS is a genuine sale. If it is a genuine sale the sale proceeds stand explained as regards their nature and source. Section 68 gives the Assessing Officer the power to examine the genuineness of the sale transaction while examining the assessee’s explanation regarding the nature and source of the monies credited.

180. We are therefore of the view that the argument that Section 6S is not attracted to a case of sale proceeds of an asset credited in the books of account cannot, with respect, be given effect to.

181. The arguments of Mr. Baljit Singh, learned Counsel for some of the interveners cannot also be given effect to. Even if the assessee does not maintain books of account, under general principles he is bound to explain the nature and source of a receipt. The argument to the contrary is answered by the judgment of the Delhi High Court in Yadu Hari Dalmia (supra) where it was held that Section 68 merely gives statutory recognition to the principle that it is the duty of the assessee to explain, even in the absence of Section 68, the receipt of monies. So far as the contention that where the jewellery is not found during the search it must be taken to have been sold is concerned, this is a matter of evidence and no legal question is involved. The absence of the jewellery during the search may be one circumstance to be taken into account, but does not relieve the assessee of the duty to prove the sale by other evidence.

182. The factual contentions raised by the interveners cannot be examined since their cases are not being decided by the Special Bench.

183. Accordingly, the question referred to the Special Bench, as reframed by us, is answered in the negative and in favour of the assessee.

184. Before we part with the appeals, we place on record our appreciation for the very able assistance provided by the learned Counsels for both the sides and the interveners.

185. In the result, the appeals before us are disposed of as under:

(1) Manoj Aggarwal-

Assessee’s appeal in IT(SS)A. No. 404/Del/2003 is partly allowed.

Department’s appeal is IT (SS) A. No. 415/Del/2003 is dismissed.

(2) M/s. Bemco Jewellers Pvt. Ltd.

Assessee’s appeal in IT (SS) A. No. 452/Del/2003 is allowed.

(3) M/s. Bishan Chand Mukesh Kumar Assessee’s appeal in IT(SS)A. No. 33/Del/2006 is allowed.

Department’s appeal in IT(SS)A. No. 35/Del/2006 is dismissed.

(4) Tejinder Singh (HUF) Assessee’s appeal in ITA No. 163/Asr./2003 is allowed.

Order pronounced in open court on the 25th day of July 2008.

Some Related Case Laws are as under:

2. DCIT Vs. Salasar Dwellers Pvt. Ltd. (ITAT Mumbai) – ITA No. 5707/Mum/2015

3. Tapan Kumar Dutta Vs Commissioner of Income Tax ( Supreme Court of India); Civil Appeal No. 2014 of 2007

4. HiKlass Moving Picture Pvt. Ltd Vs ACIT (ITAT Mumbai); ITA No. 926 to 931/Mum/2013

5. CIT Vs Sudhir Dhingra & CIT Vs. Renu Verma (Delhi High Court); ITA Nos. 287/2009 & 1329/2009

6. Haryana Paneer Bhandar Vs CIT (Delhi High Court); Income Tax (Appeal) No. 537 of 2015

7. The Asstt. CIT Vs M/s. Apoorva Caterers (ITAT Mumbai); IT(SS)A No. 232/Mum/2006

8. CIT Vs H. P Goel (Delhi High Court); ITA No 857/2009

9. The Commissioner of Income Tax Vs Manoj Bansal (Delhi High Court); ITA 578/2008, ITA 582/2008 and ITA 583/2008

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