ORDER
Miss Moksh Mahajan, A.M.
1. The assessee filed an appeal against the order passed under s. 158BC/143(3) of the IT Act. The grounds of appeal as raised originally were revised subsequently which read as under :
“(1) That, on the facts and in the circumstances of the case, the Dy. CIT was not correct in law in determining a total aggregate income of Rs. 25,50,69,506 as undisclosed income of the appellant for the block period as against nil income returned as undisclosed income, as summarised below :
—————————————————————————————
Headwise Addition Aggregate Assessment Reference in
amount of years AO's order
undisclosed
Income
1 2 3 4
Rs.
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(i) Other valuable 2,84,29,400 89-90 & 92-93 Para (D) on p. 9 assets (shares)
to 96-97 to 1st para on
p. 11 read with
Annexure A
(ii) Bogus share 5,42,21,070 91-92 to 96-97 Last para on holdings
p. 22 to 1st para
on p. 30 read with Annexure D.
(iii) Loans advanced 1,40,71,250 92-93 to 94-95 Paras 14 & 16 on by various Companies/
& 95-96 pp. 38 and 39 firms
(iv) Consolidated 8,91,86,382 89-90 to 96-97 Pages Nos. 30 to undisclosed income
43 read with of various companies
Annexure E.
(v) Sales made by 86,90,314 93-94 & 94-95 Para 9 on page B. P. Marketing Ltd.
34 and subsequent
Paras on p. 35.
(vi) Aggregate of 1,39,16,170 87-88 to 96-97 Running 1st para Bank deposits/credits
on p. 21 read with in bank accounts of
Annexure B-2. the members of appellant
and others in Benaras State Bank Ltd.
(vii) Aggregate of 2,25,31,068 91-92 to 96-97 Para (G) on pp. deposit in respective
19, 20 and 21 read bank accounts of
with Annexure unaccounted a/c
(B-3) and (B-4). holders, being clients
of the appellant.
(viii) Aggregate of 80,75,145 94-95 & 95-96 Last para on page deposits/credits in
20 and subsequent bank account of one
paras on p. 21. Sh. Mukesh Gupta.
(ix) Loan advanced 15,00,000 94-95 On p. 34 by B. P. Marketing (P) Ltd.
(x) Undisclosed 85,29,890 89-90, 94-95 Para (F) on page investment in various
to 96-97No.
11 to para immovable properties
(G) on p. 19 not owned by the appellant.
(xi) Cash advanced 4,00,000 92-93 & 93-94 Page No. 21 para
(H)
(xii) Commission of 9,75,000 95-96 Page 36 para (12) Lahar Chemical
(xiii) Unexplained 20,00,000 96-97 Page 6 para C(ii) investment in the name of children.
(xiv) Undisclosed 20,00,000 97-98 Page 8 para C(iii) children savings.
(xv) "VB" treating 2,00,000 97-98 Page 6 para C(i) balances in Vijay Bank
(xvi) Unexplained 42,350 97-98 Page 3 para (A) cash
(xvii) Unexplained 1,44,365 97-98 Page 5 para (d) investment in diamond
of para (B)
(xviii) Unexplained 57,102 97-98 Page 5 para (c) investment in
of para (B) jewellery
(xix) Unexplained 1,00,000 97-98 Page 5 para (e) investment in silver
of para (B)
------------
Total 25,50,69,506
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(2) That without prejudice to the generality of the aforesaid grounds, all and every addition made in the impugned assessment as undisclosed income of the appellant is vitiated in law on, inter alia, one or more of such grounds, as lack of jurisdiction, want of authority of law, lack of evidence, lack of proper opportunity to the appellant to adduce evidence to prove his case and failure on the part of the AO to discharge his burden of proof.
(3) That consequently, the total demand of tax of Rs. 15,30,41,703 determined by the impugned block assessment against the appellant is bad, illegal, untenable and at any rate, without prejudice, very excessive.
Various observations made by the learned AO in the impugned assessment order are either incorrect or untenable.
Statement of Facts are attached as Annexure “A”.
(4) That without prejudice to the above grounds, various additions as made by the learned AO overlap each other, also amounting to double assessment not permissible under the law, principles of telescoping ought not to have been ignored.”
2. The assessee has also sought permission to raise additional grounds of appeal vide letter dt. 23rd July, 1998. These grounds read as under :
“That the impugned block assessment order dt. 30th May, 1997 as passed by the learned Dy. CIT Special Range 13, New Delhi is arbitrary, illegal and void inter alia because :
(a) The learned CIT X Delhi had given his approval mechanically and without applying his mind independently,
(b) The learned CIT X, Delhi had not afforded an opportunity of being heard to the appellant before giving his approval.
(c) Principles of natural justice have been violated.”
3. The assessee also filed application under r. 29 of the Income-tax Appellate Rules for admission of additional evidence which reads as under :
“Most respectfully submitted that the following fresh evidence is being filed in the paper book :
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Sr. No. Nature of documents Page Nos. of paper book
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13. Affidavits from the directors/promoters
(a) Shri Shanti Kr. Agarwal, Garg Polymers
(P) Ltd. 289-292
(b) Sh. Ashok Kumar Aggarwal, G. P. K.
Marketing 293-295
(c) Sh. Ashutosh Aggarwal, Alankit Finsec.
Ltd. 296-301
(d) Sh. Adesh Goel, Prathistha Images (P)
Ltd. 302-304
(e) Sh. Manoj Tayal, B. P. Marketing Ltd. 305-309
(f) Sh. Shyam Sunder Garg, Leher Chemicals
(P) Ltd. 310-312
(g) Sh. Praveen Chandra, Sital Developers 313-314
(h) Sh. Vijay Singh, Indradhan Agro Products
Ltd. 315-319
(i) Sh. Umesh Kumar Shukla, Real Overseas
(P) Ltd. 320-322
(j) Sh. Tarun Kumar Sahai, Trousseau
Overseas (P) Ltd. 323-324
(k) Sh. Pradeep Aggarwal, Parul Poly Products
(P) Ltd. 325-326
(l) Sh. Mukesh Gupta, Npar Cans (P) Ltd. 327-329
(m) Sh. Mukesh Gupta, Npar Drugs (P) Ltd. 330-332
(n) Sh. Rajbir Singh Makhni, Rush Chemicals
(P) Ltd. 333-335
(o) Sh. R. P. Aggarwal, Excellent Securities
(P) Ltd. 336-338
(p) Sh. Pankaj Agarwal, Akriti Media (P) Ltd. 339-343
19 Statement showing the transactions of sales
and purchases of B. P. Marketing Ltd. result
in profit and not in loss as assumed by the
learned AO.
(To be filed in the supplementary paper book)
22. Affidavits from common representatives of
group of account-holders whose blank cheque
books/bank pass books were found as named
below :
(a) Sh. Manoj Aggarwal 1662-1663
(b) Sh. Rajbir Singh Makhani 1664-1665
(c) Sh. Mukesh Gupta 1666-1667
(d) Sh. Krishan Kumar 1668-1669
23. Affidavit from promoters/director
Sh. Manoj Tayal of M/s. B. P. Marketing Ltd. 305-309
31. Affidavit of Sh. Alok Aggarwal on behalf 1801-1802
of his HUF
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2. The above evidence deserves to be entertained, inter alia, because :
(i) This is the first appeal before the Hon'ble Tribunal against block assessment order.
(ii) The assessee was prevented by sufficient cause from filing the above evidence before the learned AO because either he failed to summon various persons even though the assessee had specifically requested him to do so, or he had recorded some statements behind the back of the assessee without giving him opportunity of cross-examination.
(iii) The above evidence goes to the root of the matter.”
4. Since the additional grounds as well the additional evidence to be admitted are intimately connected with the specific grounds taken in respect of the lack of proper opportunity allowed to the assessee, we would first advert to the aforesaid issue before coming to the admission of the additional ground and the additional evidence. Shri O. P. Sapra who appeared on behalf of the assessee, submitted that the assessee is a qualified chartered accountant. The firm was constituted under the name and style of Alok & Co. wherein he was one of the partners. The other partners were stated to be qualified chartered accountants. Along with the aforesaid work the assessee also executed various professional assignments for corporate and non-corporate clients. This included various companies as also the concerns promoted by the relatives and the friends. Since a few concerns were managed by the persons who were inexperienced the assessee rendered assistance relating to the management and the carrying on of his business affairs. In 1991 the family concern was formed known as M/s. Alankit Assignments (P) Ltd. This was promoted by the relatives and friends of the assessee. He became director of the aforesaid company. The company raised share capital from the year 1991 to 1996 and in the financial year 1995-96, the scope of the activities was enlarged. Searches were conducted on the business premises of the assessee at 234, Cycle Market, Jhandewalan Extension and 205, 206, 204, 245 & 1003, Anarkali Market, Jhandewalan Extension, New Delhi. The residential premises of the assessee were also searched and certain documents and the account books as well the records of other companies were seized. From the date of search i.e., 19th April, 1996, till 12th June, 1996 the learned ADI recorded the statement of Shri Alok Agarwal and the records were with the Intelligence Wing of the Department. Notice under s. 158BC requiring the assessee to file the return for the block period from 1st April, 1986, to 19th April, 1996, was issued on 9th October, 1996, in compliance to which the return for the block period was filed on 5th December, 1996 declaring undisclosed income as Nil. Apart from the fact that the assessee had been requesting for supply of the photocopies of seized material from time to time, it had filed replies to all the questionnaires issued on the basis of material available with the assessee. A request was also made to issue notices under s. 131 of the Act to the companies or shareholders which were to be examined in the context of income belonging to them or to the assessee. This was the main controversy which related to the addition made in various assessment years amounting to Rs. 19,45,98,302. The addition was made under the following heads :
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Headwise addition Aggregate amount of Assessment years
undisclosed income
Rs.
--------------------------------------------------------------------
(1) Other valuable assets 2,84,29,400 89-90 & 92-93 to (shares) 96-97
(2) Bogus shareholdings 5,42,21,000 91-92 to 96-97
(3) Loans advanced by various
companies/firms 1,40,71,206 92-93 to 94-95 &
95-96
(4) Consolidated undisclosed
income of various companies 8,91,86,382 89-90 to 96-97
(5) Sales made by B. P.
Marketing Ltd. 86,90,314 93-94 & 94-95
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Total 19,45,98,302
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From the fact that the assessee was in possession of the account books/complete vouchers/statutory records of the companies for the current year as well as the earlier years, the conclusion was drawn that the income earned by these companies belonged to the assessee. The explanation that the companies had their separate registered offices and were independent entities in respect of which the assessments have been framed for the earlier assessment years was not accepted. The reasons given for bringing to tax the income of these companies in the hands of the assessee were that many of these companies had given the address of their registered office or premises as that of the assessee. Secondly the companies were controlled and managed by the promoters who were either dummy directors or the assessee himself, his wife or close relatives. The assessee failed to produce shareholders in these companies and no one was there at the addresses given in the share application forms and as per the statements recorded under s. 131 of the Act. As per the Inspector’s report, the shareholders were not men of means. The fact that the share certificates of various companies were found at the premises of the assessee and the share as well the blank documents bearing signatures of the shareholders showing a receipt of shares clearly showed that these were benamidars of the assessee. The assessee refuted all the allegations as levelled against it. It was explained that the assessee rendered managerial assistance to these companies because they require it for which the fees were charged. Since they were in constant need of advice, for the purpose of convenience the registered office was given as that of the assessee’s office. There was sufficient documentary evidence available other than the seized material and as brought to the notice of the AO that the assessee was acting in his professional capacity for these companies. It is in this context that the affidavits of the promoters now placed are for admission under r. 29 of the IT Rules. The companies were income-tax assessees and were on regular rolls of the Department since their inception. These were independent corporate bodies which could be verified from the records of the Department. The assessee was the auditor of the companies and was drawing remuneration from them. Audited balance sheet of all the 24 companies placed on record would show that the funds flowed from them and there was no evidence to show that usufruct was enjoyed by the assessee. As to the requirement of producing shareholders/directors the assessee brought to the notice of the AO that it was not possible for him to comply with the request and as such notice under s. 131 be issued to them. Copies of the statements of the directors/shareholders of various companies as recorded by the authorities were supplied to the assessee as late as on 20th May, 1997. Asking for assessee’s comments by 25th May, 1997. The assessee made a request that he be allowed to cross-examine these witnesses whose statements were recorded at his back. Not only the same was not allowed perhaps for lack of time because the assessment was finalised on 30th May, 1997, the assessee could not effectively refute the allegations for want of time. The statements recorded at the back of the assessee could not be made use of as held by their Lordships in the case of Kishanchand Chellaram vs. CIT (8980) 125 ITR 713 (SC). Furthermore as held by their Lordships of Allahabad High Court in the case of Nathu Ram Prem Chand vs. CIT (1963) 49 ITR 561 (All) and in the case of EMC (Works) (P) Ltd. vs. ITO (1963) 49 ITR 650 (All). The request made by the assessee for issue of summons under s. 131 has to be acceded to by the AO. These statements could not be used against the assessee till he was allowed the opportunity to cross-examine them which otherwise would have also been allowed in order to meet the principles of natural justice. For this fact alone the assessment needs to be set aside. This is more so in case the statements of various parties as recorded are examined. The perusal of these statements would show that while few parties owned up the investment made out of their own sources which is the case of Narender Kumar Rajgaria, Smt. Sushila Saxena, Dinesh Narain, Manoj Aggarwal etc., Ms. Fariya Rizvi was a minor when an investment was made and as such it was her father Shri H. H. S. Rizvi who should have been examined instead of the assessee. From the statement of Shri Surender Garg it is clear that nowhere he mentioned that the money for purchase of shares came from the assessee. Shri Vinay Gupta on the other hand is an advocate and has funds to invest the money. The statements of other parties reflect similar position. As to the placement of share certificates in the premises of the assessee, the same were maintained in his professional capacity and as such no adverse inference could be drawn. The AO brought no material on record to show that the usufruct of these companies was enjoyed by the assessee. In any case the question whether the income of these companies which are held to be benamidars of the assessee could be brought to tax in the hands of the assessee, has since been decided by the Tribunal in the case of Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 397 (Pune). Apart from this while making the addition of Rs. 19 crores and odd, the AO has not only made an addition on account of share capital money but also the investment made out of the same. In a process double addition has been made which needs to be examined.
5. Coming to the second addition while a sum of Rs. 78,95,380 has been added on account of bank accounts of the assessee’s wife, his son and the HUF, the addition of Rs. 60,20,790 has been included in respect of credits/deposits of third parties not being related to the assessee. These are Ms. Fariya Rizvi, Ms. Iram Rizvi, Mariyam Rizvi, Rakesh Sareen & Sons, Neeru Sareen, etc. These bank accounts were procured at the back of the assessee and opportunity was not allowed to meet way of the queries by way any material or evidence in rebuttal. Furthermore the particulars in regard to the bank account were not even supplied to the assessee before passing the block assessment order. The assessee had no knowledge about the accounts maintained in the names of the third parties. To quote a few Shri O. P. Sapra drew our attention to certain facts as listed in the application which showed that in making the addition gross violation of principles of natural justice occurred. Similar lapse occurred while bringing to tax an amount of Rs. 2,25,31,068 on account of unconnected accounts of holders being clients of the assessee. The addition was made on the strength of 52 blank cheque books found in the premises of the assessee. These belong to the assessee’s clients and came to his possession for the purpose of finalisation of their annual accounts and preparation of their income-tax returns. Despite written requests made to summon these account holders, this was not done.
6. As regards addition made at Rs. 80,75,145 on account of deposits/credits in bank account of Shri Mukesh Gupta, it was submitted that the AO had no evidence whatsoever as a results of search for which the addition on this account was made.
Since the aforesaid amount could not be covered under the head ‘undisclosed income’ as defined in s. 158B of the Act, the same was not justified. To the same effect was the addition made at Rs. 15 lakhs on account of loan advanced by M/s. B. P. Marketing (P) Ltd. This was done since the payment was made out of the funds available with the assessee. The same could not be added to the income of the assessee.
7. The AO also made additions on account of undisclosed investment in various immovable properties which were not owned by the assessee. The addition made was at Rs. 85,29,890. Relying on the details given on pp. 41 to 45 it was submitted that the additions were based on entries found noted in the seized diary of the assessee. The fact that the assessee noted the market value of certain properties could not show that the same belonged to the assessee. His explanation on this account should have been accepted or subjected to further probe. Since there was no conclusive evidence brought on record, the addition could not be sustained. The additions made at Rs. 4 lakhs on account of advances through Shri N. N. Goyal, Rs. 9,75,000 on account of commission of M/s. Lehar Chemicals (P) Ltd. Rs. 20 lakhs on account of unexplained investment in the names of children, Rs. 20 lakhs on account of undisclosed children’s savings, Rs. 2 lakhs on account of VB treating it as balance with Vijaya Bank, Rs. 42,350 on account of unexplained cash, Rs. 1,44,365 on account of unexplained investment in diamonds, Rs. 57,102 on account of unexplained investment in jewellery, Rs. 1 lakh on account of unexplained investment in silver, etc. were all made on the material for which the assessee was not allowed the rebuttal in the sense that proper opportunity was not allowed to meet the allegations. Summing up the arguments it was stated that since the assessee was denied proper opportunity to meet the allegations made against him, the assessment needs to be set aside.
8. Shri M. K. Mishra, the learned Departmental Representative supported the order of the AO. Attention was drawn to two items of diaries to show that the assessee did not cooperate fully with the AO at the time of framing the assessment. The assessee being a chartered accountant should be in a better position to represent its case and since it was not done the AO had no alternative but to draw adversed inferences. He however admitted that the assessee was not allowed to cross-examine as requested by him. He also fairly admitted that in the assessment as framed double additions have occurred as pointed out by the assessee in the written submissions.
9. We have carefully considered the rival submissions. As pointed out earlier ground No. 2 of revised grounds of appeal reads as under :
“(2) That without prejudice to the generality of the aforesaid grounds, all and every addition made in the impugned assessment as undisclosed income of the appellant is vitiated in law on, inter alia, one or more of such grounds, as lack of jurisdiction, want of authority of law, lack of evidence, lack of proper opportunity to the appellant to adduce evidence to prove his case and failure on the part of the AO to discharge his burden of proof.”
The hearing was confined to the aforesaid ground without going into the merits of the case. As mentioned in the elaborate submissions made before us we find that though the statements of shareholders/directors/persons were recorded by the AO.
These were at the back of the assessee. In view of the decision of the Hon’ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (supra), the aforesaid statements could not be made use of while drawing the adverse inference against the assessee. In this context, we find that the assessee made the request for cross-examination of the witnesses. This was not allowed perhaps the time available at the disposal of the AO was very short. However, the statements of third parties before they could be relied upon have to be confronted to the assessee and it is his right to cross-examine them if he so wants. This would be in the fitness of the principles of natural justice. Similar was the case in respect of the addition made on account of deposits/credits in the bank accounts. Not only the deposit in the names of relatives who had been assessed to tax were assessed in the hands of the assessee, deposits of third parties who were stated to be unconnected with the assessee were added in his income on the basis of the information collected at the back of the assessee and without confronting him the same. The information so collected had to be confronted to the assessee and opportunity be allowed to rebut the same. The assessment framed under the present section has to be in respect of income which is undisclosed. The expression has been defined in s. 158BA and has to be construed as such. The AO is not permitted to go beyond the material discovered as a result of search and to make roving enquiries in order to rope in certain income which apparently belongs to somebody else. This apart, we find that the additions as made tantamounts to double addition inasmuch as that not only the amount reflected as share capital has been brought to tax even the investment made out of the same has also been added. No attempt has been made to link two in case the addition was called for on account of share capital income which is the starting point of the contribution of amounts. Further the assessee’s statement that even the income which has been recorded in the regular books of accounts, has also been brought to tax, needs to be verified. To similar effect is the additions made on various accounts as referred to above. Specific reference is made to the bank account of Shri Mukesh Gupta which is stated to be not connected with the search proceedings. As per the statement of the assessee that there was no evidence coming to the possession of the Department which called for the enquiry in the case of bank account of Shri Mukesh Gupta who was in no manner connected with the assessee. While Shri Mukesh Gupta was never examined the statement of Shri Surender Garg, his elder brother was recorded at the back of the assessee and the cross-examination of the party was not allowed. The linkage between the additions made on various accounts with the ones made on account of share capital funds for which separate additions were made was also not established. The additions made have to be as per the procedure laid down under ss. 28 to 43C of the Act. It has also to be shown that certain additions are called for under ss. 68, 69, 69A or 69C of the Act, to which reference has to be made. On the reasons stated above briefly, it is clear that the assessment framed was in violation of the principles of natural justice. Before any adverse material collected at the back of the assessee is made use of, the same is to be confronted to the assessee for rebuttal. In the circumstances, we agree with the assessee’s counsel that on the limited ground of non-allowance of proper opportunity the matter needs to be restored back to the file of the AO. The AO is to allow proper opportunity to the assessee to rebut the evidence as collected and to place any material in support thereof. The learned authorised representative gave an assurance that the assessee would fully co-operate with the Department in furnishing any information called for by the AO. In the circumstances we have not gone into the merits of the case and the assessment as framed is set aside in toto to be reframed again.
10. In the result, the appeal is allowed for statistical purposes.