I.T.A. No. 22 of 2008 Date of decision: 28.2.2011
The Commissioner of Income Tax —— Appellant.
M/s Mukta Metal Works. Respondent
CORAM:- HONORABLE MR. JUSTICE ADARSH KUMAR GOEL HONORABLE MR. JUSTICE AJAY KUMAR MITTAL
Present:- Mr. Yogesh Putney, Sr.Standing Counsel for the appellant.
Ms. Radhika Suri, Advocate for the respondent.
ADARSH KUMAR GOEL, J.
1. This appeal has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, “the Act”) against the order of the Income Tax Appellate Tribunal, Chandigarh in IT/SS No.37/Chandi/2005 and C.O. 71/Chandi/ 2005 for the block period ending on 14.9.1999 claiming following substantial questions of law:-
“1. Whether the Ld. Tribunal is right in holding at page 68 of the order that the office note dated 21.05.2001 which was appended to 158BC order dated 21.5.2001 and is part of the said order, does not constitute a satisfaction note within the parameter of Section 158 BD of the Income Tax Act, 1961 in respect of the person who has borrowed money through the assessee broker who is the searched person for the purpose of order U/s 158 BC of the Income Tax Act, 1961?
2. On 14.9.1999, search was carried out at the residence of one Anil Kumar Goel @ Anil Dalal who was deriving income from commission from the money lending business. During search, a bahi (diary), Annexure A-1, was seized. The same contained various entries in code language in figures and words. His statement was recorded on 14.9.1999, 30.9.1999, 2.11.1999, 4.11.1999 and was concluded on 20.1.2000. The substance of his statement was that he was, inter-alia, doing business of broker in money lending transactions between various parties. The lenders/borrowers contacted him and he would arrange meetings between them. If the transaction matured, he would get his commission and if he got commission, he made entries in the diary. The entries in the diary seized represented commission received in transactions between parties mentioned in the diary in code form which could be identified. In his case, block assessment was completed on 21.5.2001 and on the said date, an office note was appended to the assessment order to the effect that undisclosed income of persons other than searched persons was disclosed, as under:-
“The issue of entries depicting advancing of loans by various persons as figuring in A-1/and other related documents has been examined in detail on the basis of details, almost all the persons and concerns are identifiable except in the case of three accounts mentioned above. No real names relating to the family of Shri Nand Lal Garg and his sons could be identified and discovered. Therefore, cognizance of these entries on protective basis has been taken in the case of the assessee keeping in view the fact that block search assessment of Shri Nand Lal Garg and his sons are pending with Hon’ble Settlement Commission. As regards entries of other persons are concerned, no adverse inference is taken in the case of the assessee as these persons are identifiable. Moreover, in view of the fact that Shri Anil Kumar Goyal was a broker in the money lending business and document marked as ‘A-1’ has been maintained by him in the regular and normal course of business. Therefore, due cognizance is being taken separately, in the case of lenders by initiating proceedings under Chapter XIV-B of the I.T.Act, 1961.”
3. Accordingly, proceedings under Section 158BD read with Section 1 58BC of the Act were initiated against the assessee who was identified as having lent money from undisclosed sources. The assessee filed return of its income dated 30.12.2002 declaring undisclosed income at nil. However, the Assessing Officer assessed the undisclosed income at `3 lacs relying upon the statement of Anil Dalal and the entries in the document found during the search, apart from `17,500/- as income from interest thereon.
4. On appeal, the addition was set aside by the CIT(A) on the ground that except the diary and the statement of the broker, there was no other corroborative evidence and the lenders/borrowers mentioned in the diary denied the transactions recorded therein. Appeal of the department was dismissed by the Tribunal. Cross-objections of the assessee on preliminary issue, of jurisdiction to initiate block assessment proceedings without proper satisfaction, was accepted by the Tribunal. The Tribunal rejected application of the revenue for additional evidence in the form of report of Government laboratory on the issue of authenticity of diary entries and affidavit of the searched person. The findings recorded by the Tribunal are as under:-
On the issue of validity of satisfaction:-
“33. We have examined the above contention raised on behalf of the Revenue. A perusal of the aforesaid note shows that there is no averment or a finding by the assessing officer that the transactions which have been explained by the ‘dalal’ as belonging to certain persons are undisclosed transactions in the hands of the respective parties. Evidently there is nothing on record to show that any verification exercise was carried out by the assessing authority before recording the aforesaid satisfaction for the purpose of Section 158BD. The only observation of the Assessing Officer is that the persons and concerned explained by ‘dalal’ are identifiable. The mere identity of the parties recorded in Annexure A-1 by itself does not imbibe those transactions with the nature of “undisclosed” since there is no collateral finding that the respective parties have not accounted for such transactions in their books of account. It has been vehemently canvassed that subsequently the ACIT, Yamuna Nagar by way of his communication dated 28.12.2001 has confronted the said entries to the assessee in response to which the assessee, by way of his communication dated 7-1-2002 has denied the said entries. It is further contended by the Revenue that the requisite verification exercise has been carried out by the Assessing Officer before issuance of notice u/s 158BD of the Act on 15.3.2002. Be that as it may, it is sufficient for us to deduce here that in order to arrive at the satisfaction contemplated u/s 158BD in this case the necessary investigation and culling out of the facts and information was required to precede the recording of the satisfaction on 21.5.2001. The material and information which came to the knowledge of the Assessing Officer subsequent to the date of recording of satisfaction i.e. 21.5.2001 is not relevant to decide the validity of the satisfaction recorded on an anterior date. After examining the aforesaid note dated 21.5.2001 and the submissions of the learned DR, we do not find any satisfaction emerging “that any undisclosed income belongs” to a person other than the person in respect of whom search was made. Neither is there any identification of any undisclosed income or transaction and nor is there any identification of the ‘other person’contemplated u/s 158BD. Not withstanding the aforesaid, we are also satisfied that on the basis of material available with the Assessing Officer of ‘dalal’ as on the date of said note, it could not be deduced that the transaction in Annexure A-1 reflected undisclosed income of the assessee so as to justify the invoking of Section 1 58BD of the Act. The quality of evidence available with the A.O. does not justify any satisfaction regarding existence of the undisputed income or even the identification of such other person contemplated u/s 158BD. The only basis was the statement of ‘dalal’ and no further. On an overall consideration of the material on record, we are satisfied that the office note dated 21.5.2001, although is within the period of limitation, however the same cannot be considered as a valid satisfaction contemplated u/s 158BD of the Act. In fact is has been vehemently argued by the learned DR that Annexure A-1 and the subsequent statement of ‘dalal’ have been put to verification regarding the transactions of lending of certain in parties other than the assessee which have taken place through banking channels. It is thus submitted that Annexure A-1 was authentic and reflected true state of affairs. This aspect can at best provide a reason to the Revenue to probe further and make deeper investigations to arrive at the true state of affairs. However, the same by itself cannot be enough to deduce that the transactions which are explained by ‘dalal’ construe undisclosed income of the other person contemplated u/s 1 58BD i.e. the assessee before us. We therefore, conclude that the aforesaid note does not fall within the parameters of Section 158BD regarding recordingof satisfaction. This vitiates the assumption of jurisdiction by the A.O. by issue of notice u/s 1 58BD of the Act dated 15.3.2002.
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“48. From the aforesaid it emerges that the said evidence does not justify an inference that any transactions in cash have indeed taken place. Firstly, the parties (i.e. the lender and borrower) named by dalal have denied having undertaken any such transactions. Secondly Dalal himself also does not admit of having either witnessed the cash transaction or of having transacted it himself. In the face of this, it cannot be established that the transactions as narrated by ‘Dalal’ ever took place. In the absence of any such evidence, the correctness of entries in Annexure A-1 cannot be established. After all the entries in the Annexure A-1 can be considered as corroborated only once the direct evidence of the person who is said to have witnessed the exchange of payment is available on record. As the position stands before us there is no such evidence on record. Thus there is no material on the basis of which it can be said that transaction in cash have been entered into by the assessee as recorded in the Annexure A1. We, therefore are satisfied that the material and evidence brought on record by the Revenue is not sufficient to conclude that the assessee had indulged in money lending transactions in cash outside the books of account.
49. Further, in reply to another question, during cross examination done during the impugned assessment proceedings (refer page 162 of the paper book filed by the Revenue) ‘Dalal’ stated that the name of the parties in Annexure A-1 are writing by him as told by the parties who indulged in money lending. This also supports the inference that the recording in Annexure A-1 are not on the basis of the first hand knowledge of ‘Dalal’. In other words, it can be safely deduced that the charge made out by ‘Dalal’ against the assessee is not on the basis of his personal knowledge. Under these circumstances, we feel that the evidence brought on record by the Revenue does not carry its case any further. The evidence in question is not amenable to be taken as true and correct to implicate the assessee with any tax liability under Chapter XIV-B of the Act.
50. Much has been argued by the either parties regarding the manner of maintaining of Annexure A-1 by Dalal. The Revenue has contended that the said annexure was maintained in the shape of a ledger and as a record of broking transactions and is maintained in the regular course of business and can be equated to be a book of account. The assessee contends that the said Diary cannot be equated to a book of account of any business. We do not find it necessary to go into this controversy as it does not help much to decide the question on hand. What is of relevance is to decide the evidentiary value and correctness of the Annexure which we have already addressed in the earlier paragraphs. Similarly, much has been argued by the either parties on the decision of the Hon’ble Supreme Court in the case of V.C. Shukla and others (Supra). The assessee has attempted to draw support from it and CIT (Appeals) has also relied on it whereas according to the Revenue the said decision is inapplicable to the facts of the present case. We have carefully perused the said decision. The Hon’ble Supreme Court was dealing with the case of the prosecution against various persons under section 7 and 12 of the Prevention of Corruption Act, 1998 and Section 56 read with section 8 of the Foreign Exchange Regulation Act, 1973. The allegation of the prosecution was that Jains entered into a criminal conspiracy amongst themselves, the object of which was to receive unaccounted money and to disburse the same to various persons, including, V.C. Shukla and others. In pursuance of the said conspiracy Jain lobbied with various public servants to persuade them to award contracts to different foreign bidders with the motive of getting illegal kickbacks from them. An account of such receipts and payments was maintained by Jain in the diaries and files which were recovered during the course of a search by CBI. The issue was as to whether the entries in the diaries and files was an admissible evidence under section 34, 16 & 17 of the Evidence Act, 1872. The decision of the Hon’ble Supreme Court hinges on the provisions of section 34 of the Evidence Act, 1872. Section 34 of the Evidence Act deals with the relevance of the entries in the books of account. It provides the entries in books of account, “regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability”. On facts, the diaries seized were held to be admissible as evidence under section 34 of the Evidence Act, 1872. However, the Supreme Court noted that the truthfulness of the entries in the diaries was not proved by any independent evidence. Hence it was held that the prosecution could not prove its case. In this context the Hon’ble Supreme Court examined the expressions “books of account” “course of business” and “regularly kept” as appearing in section 34 of the Evidence Act, 1872. The above discussion is sufficient to deduce that the reasoning adumbrated in the said decision is only in the context of the wordings of the relevant sections of the Prevention of Corruption Act, 1988. Ostensibly such reasoning cannot be imported into the income tax proceedings. It is a quite well settled proposition that the strict rules of evidence are not applicable to the income tax proceedings. So, therefore, the principles laid down in the case of V.C. Shukla (Supra) do not help in resolving the controversy before us. The principle that we have found useful to resolve the controversy before us has been discussed by using elsewhere in our order.
51. We may also refer to the manner in which the evidence in the shape of Annexure A-1 has been considered by the assessing authority of dalal from whose possession such evidence has been seized in the course of assessing finalized u/s 158BC of the Act. We may also mention here that initially the order u/s 158BC was passed by ACIT, Yamuna Nagar in the case of dalal on 21.5.2001 which was reviewed by the CIT u/s 263 vide order dated 31.12.2003 and was quashed. Subsequently, the assessment u/s 158BC read with Section 263 of the Act has been finalized by ACIT, Yamuna Nagar on 31.3.2004. We have perused both the assessments and find no dissimilarity in the two Annexure A-1 has been accorded by the Assessing Officer as explained by dalal which we have already narrated in the earlier portion of our order. In the course of such assessment proceedings, the Assessing Officer, by way of office note No.4 recorded as under:
“The assessee has shown its receipts from Dalali business at Rs.42115/- and Rs.32720/- for the assessment years 1999-2k and 2000-2001 respectively. The assessee was confronted with figures of dalali is estimated by the DDIT(Inv.) Ambala from D.No. The assessee has given the complete detail of dalali received by him as per this document. No adverse cognizance is drawn in view of the fact that most of the persons have denied having paid any dalali to the assessee. Moreover, brokerage was being received from the borrowers only. None of the lenders whose statement were recorded had admittedly having paid any brokerage. The brokerage is charged only once that is at the time of advancing of loan by the lender to the borrower, Dalali income is shown on the receipt basis. In view of the above facts dalali income as shown by the assessee has not been interfered with.” Evidently in the case of dalal, no adverse view has been taken in the face of denials by the borrowers regarding the commission income in the hands of ‘Dalal’ Curiously, similarly denials of the parties have not found credence with the Revenue and adverse inference against such parties i.e. the assessee before us, has been drawn. Evidently such a contradictory approach from the side of the Revenue is untenable.”
On the issue of additional evidence:-
“53. Before parting, we may also observe that the Revenue has moved an application dated 21.6.2006 signed by the Learned DR for admission of additional evidence with reference to the grounds of appeals raised by the Revenue. The learned DR referred to the provisions of rule 29 of the Appellate Tribunal Rules and submitted that the said evidence was collected after the completion of assessment in the case of assessee. The additional evidence is, (i) an examination report/opinion of Laboratory of the Government Examiner of Questioned Documents, Simla regarding the Diary of ‘Dalal’ & (ii) affidavit of dalal dated 27.10.2004. The learned DR has urged that the documents/evidence “go to the very rot of the material” and the same ought to be admitted. The learned DR has argued that the evidence has bearing on the stand of Assessing Officer that the contents of the Diary are authentic.
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55. We have considered the pleas made by both the parties with reference to the admissibility of the aforesaid additional evidence. We have also carefully perused the order of the Tribunal dated 16.11.98 (Supra) passed by our co-ordinate Bench. The Tribunal was dealing with admissibility of additional evidence collected by the Department after completion of assessment in the case of the assessee which was collected in the course of assessment of a third party. After an exhaustive exposition of rival contentions, case laws and provisions of Chapter XIVB of the Act, the Tribunal concluded that it was not permissible for it to admit additional evidence. The following portion of the order of the Tribunal is worthy of notice:
“3.4- We may also make a reference here to the provisions of section 158BC of the Act relating to block assessment, whereunder the issue of notice u/s 148 is dispensed with for the purpose of proceedings under Chapter XIV-B and the assessee is also prevented from revised return. Further, under the provisions of section 158BF, penalties for concealment under the provision of Section 271(1)(c) cannot be imposed in respect of undisclosed income determined in block assessment. Having regard to the said provisions, in case of admission of proposed evidence the Tribunal will have to restore the matter to A.O. for the reasons mentioned by learned DR i.e. to enable the assessee to meet the new facts as now found by Assessing Officer. Such a course of action will thus enable the department to consider the material collected in the case of third parties assessment, after completion of block assessment in the case of the assessee, which could normally have been done by the department by re-opening assessment under the normal provisions of the IT Act, after issue of proper legal notice u/s 148. As already mentioned, recourse to the provisions of section 148 is not contemplated under Chapter XIV-B relating to block assessments. Thus, it will be an attempt to bypass the existing provisions of Chapter XIV-B and achieve something indirectly which cannot be done directly under the existing provisions relating to block assessments. Such an attempt will be a colorable device to defeat the provisions enacted by the Legislature and the Tribunal obviously cannot subscribe or accede to the plea urged by learned DR to admit the said evidence. We do appreciate the constraint placed on the department by the existing provisions of Chapter XIV-B to complete assessment hurriedly within the specific period on the basis of whatever evidence is available within that period with the Assessing Officer and at the same time not being in a position to reopen the assessment, as provided in that Chapter so as to consider any further evidence collected against the assessee in his case or connected cases. However, the Tribunal is bound by the existing provisions of law and it cannot act in a way so as to supplement law or remove the lacunae, if any, therein.
3.5.- In view of the foregoing position, the prayer of the department to admit the aforesaid evidence as additional evidence is turned down.”
56. We find that the situation before us is akin to what was before the Tribunal on the case R.K. Syal (Supra). Moreover, we find that the evidence in the shape of forensic report is dated 7.10.2004 and the affidavit of ‘dalal’ as dated 27.10.2004. Both these evidences were available with i.e. Revenue even during the course of first appellate proceedings before the CIT (Appeals). The CIT (Appeals) has passed her order on 4.1.2005. There is no explanation or reason brought on record by the Revenue as to why such evidence could not be produced before the CIT (Appeals) specially when an opportunity was available. The CIT(Appeals), as is evident from her order called for a remand report from the Assessing officer and has passed an order after considering such report of the Assessing Officer.”
7. Learned counsel for the assessee supported the impugned findings and submitted that the satisfaction contemplated under Section 158BD of the Act had to be specific and based on verification of facts. The satisfaction recorded did not comply with the statutory requirement in the note recorded on 21.5.2001 and note dated 15.3.2002 was after conclusion of assessment of the searched person which could not be taken into account. It was also submitted that the diary recovered was not by itself sufficient to presume undisclosed income at the hands of the assessee. The entries in the diary are said to be in code language and there was no corroboration either that the same related to the assessee or that the extent of income was to the extent of the amount which has been added. The statement of Anil Dalal was not reliable. At best, the statement recorded immediately after the search could be relied upon and not the subsequent improved version which was at variance with the initial version. Even otherwise, the diary did not qualify to be the books of account under Section 34 of the Evidence Act, 1872, which could be relevant or admissible in evidence. It was further submitted that the Tribunal was justified in rejecting the additional evidence, by relying upon its own order in the case of Shri R.K. Syal v. ACIT I.T.A. No.1165/CHANDI/96 and also for the reason that the revenue had not given any reason for not producing any reason earlier. Reliance has been placed on following judgments:-
|1.||Manish Maheshwari v. ACIT & anr. (2007) 289 ITR 341 (SC).||
to submit that satisfaction under Section 158 BD is a condition precedent for proceeding against a person other than the searched persons.
CIT v. Dawn View Farms (P) Ltd. (2009) 224 CTR (Del), Subhas Chandra Bhaniramka v. ACIT (2010) 320 ITR 349 (Cal) and Amity Hotels (P) Ltd. & Ors. v. CIT & ors. (2005) 272 ITR 75 (Del) and Chhugamal Rajpal v. S.P. Chaliha & ors. (1971) 79 ITR 603 (SC)
to submit that in absence of specific recording of satisfaction that undisclosed income belonged to the assessee on the basis of material found during search and the same being forwarded to the Assessing Officer of assessee, the block assessment was without jurisdiction.
Om Parkash Jindal & anr. v. Union of India & ors. (1976) 104 ITR 389 (P&H), CIT v. Sunil Bhala (2011) 50 DTR 238 (Del), Additional CIT v. Miss Lata Mangeshkar (1974) 97 ITR 696 (Bom) and Chandradhar Goswami & ors. v. Gauhati Bank Ltd. AIR 1967 SC 1058.
to submit that the word ‘information’ under Section 132(1) means information which could be believed and not mere suspicion. Investigation was necessary before effecting seizure and forming of opinion that there was reason to believe that there was undisclosed income.
CBI v. V.C. Shukla & others (1998) 3 SCC 410
to submit that even if entries in the books of account are admissible under Section 34 of the Evidence Act, the same are only corroborative and could not be acted upon without independent evidence as to trustworthiness of the said entries.
Ram Prasad Sharma v. CIT (1979) 119 ITR 867 and Sumati Dayal v. CIT (1995) 214 ITR 801.
to submit that additional evidence should not be mechanically allowed unless the Tribunal finds it necessary for its decision.
10. It is not disputed that the ACIT, Yamunagar had been conferred jurisdiction to make assessment in the case of the assessee on 31.12.2001 prior to passing of the order of assessment and before recording the note dated 15.3.2002. The said note obviously was in continuation of earlier note dated 21.5.2001. Notice issued by the said authority could not be treated as invalid. Question 2 stands answered accordingly in favor of the revenue.
“Briefly stated, the burden of proof may be shifted by presumptions of law or fact, and presumptions of law or presumptions of fact may be rebutted not only by direct or circumstantial evidence but also by presumptions of law or fact. We are not concerned here with irrebuttable presumptions of law.”
13. In M.S. Narayana Menon Alias Mani v. State of Kerala and another (2006)6 SCC 39, it was observed:-
“40. In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd edition, at page 3697, the term ‘presumption’ has been defined as under:
“A presumption is an inference as to the existence of a fact not actually known arising from its connection with another which is known.
A presumption is a conclusion drawn from the proof of facts or circumstances and stands as establishing facts until overcome by contrary proof.
A presumption is a probable consequence drawn from facts (either certain, or proved by direct testimony) as to the truth of a fact alleged but of which there is no direct proof. It follows, therefore that a presumption of any fact is an inference of that fact from others that are known”. (per ABBOTT, C.J., R. v. Burdett, 4 B. and Ald, 161)
The word ‘Presumption’ inherently imports an act of reasoning a conclusion of the judgment; and it is applied to denote such facts or moral phenomena, as from experience we known to be invariably, or commonly, connected with some other related facts. (Wills on Circumstantial Evidence)
A presumption is a probable inference which common sense draws from circumstances usually occurring in such cases. The slightest presumption is of the nature of probability, and there are almost infinite shades from slight probability to the highest moral certainty. A presumption, strictly speaking, results from a previously known and ascertained connection between the presumed fact and the fact from which the inference is made.”
16. Accordingly, this appeal is allowed, the impugned order of the Tribunal is quashed and the matter is remanded to the Tribunal for fresh decision in accordance with law.
Parties may appear before the Tribunal for further proceedings on 23.5.2011.
February 28, 2011