Keshaw Prasad, A.M.
1. The appeals have been filed against the orders of the Asstt. CIT, Central Cir-20 dt. 29th December, 1997 under s. 158BA of the Act. The block period covered under the assessment relates to 1st April, 1986 to 1st November, 1996 in both the cases. As the issue in both the appeals are common the appeals are being disposed of by a consolidated order.
2. The appellants are companies incorporated under the Companies Act. The search and seizure operation under s. 132 took place on the business premises of the assessee on 1st November, 1996. Order under s. 158BA was passed by the AO on 29th December, 1997. The order was served on the appellants on 2nd January, 1998. As per provisions of s. 253(1)(b) of the Act the first appeal before us should have been filed on or before 1st February, 1998. However, the same were filed on 22nd May, 1998 late by 109 days. By application both the appellants have requested us for condonation of delay in filing the appeals. It was argued by the learned counsel that when the assessment order under s. 158BA were made the same were served on the appellants along with the notices under s. 156 of the Act. On the demand notices in respect of both the companies the authorities having appellate jurisdiction was mentioned as CIT(A)-XXIII, New Delhi. Accordingly the appeal in both the cases was filed in his office on 27th January, 1998 which was well within the time prescribed under s. 253(1)(b). The photocopy of the demand notices were also filed to support the claim. It was argued that even the CIT(A) had fixed the hearing in those cases when it was explained to the assessee that as the search and seizure operation took place prior to 1st January, 1997 the first appellate authority was the Tribunal. According the CIT(A)-XXIII passed the orders by holding that the appeals were not maintainable. The assessees have, therefore, filed appeal before the Tribunal on 22nd May, 1998. It was argued that as there was a reasonable cause in filing the appeals late the same may be condoned. The learned Departmental Representative stated that in the circumstances mentioned above there appears to be reasonable cause for filing the appeals late. After considering the submissions we feel that there was a reasonable cause in filing the appeals late. We, therefore, condone the delay in filing both the appeals.
3. The first issue in both the appeals relates to the application of the provisions of s. 145(2) and thereby making estimated addition to the income of the assessee for different years on account of rental income. The other issue related to the addition of various amounts under s. 68 of the Act in different years.
4. During search and seizure operation the books of account of both the assessees for different years were seized. The scrutiny of these books of account revealed certain discrepancies enumerated by the AO in his order. The assessees were accordingly asked to explain as to why the books of account maintained by the assessees may not be rejected. As there was no response to such show-cause notice the AO applied the provisions of s. 145(2) of the Act. The AO also noted that the assessees were deriving rental income earlier from a property owned by it. In the case of one appellant, namely, M/s. White Lily Estates (P) Ltd. the AO held that the assessee was not co-operating with the Department and accordingly estimated the rental income @ Rs. 1,05,000 each year for asst. yrs. 1993-94 to 1996-97 and Rs. 60,000 for the period falling in asst. yr. 1997-98.
5. The AO also noted various entries in the books of accounts of the assessee. As the sources thereof was not proved he made the following additions under s. 68 of the Act in the case of M/s. White Lily Estates (P) Ltd. treating them as undisclosed income under s. 158BA of the Act :
Asst. yr. Amount 1987-88 77,500 1989-90 37,70,851 1990-91 15,17,709 1991-92 11,52,365 1992-93 15,64,169 6. Similar additions were made in the case of the other appellant i.e. Jupiter Estates (P) Ltd. but the figures were different.
7. Both the assessees have come up in appeal before us against the additions made referred to above. It was argued by the learned counsel that the assessment orders have been passed under s. 158BA of the Act. The scope of the word “undisclosed income” referred to in s. 158B was very limited. This section applies only when certain undisclosed income is computed due to search and seizure operation based on any entry in the books of account or the documents or transaction where such money, bullion, etc. or the entry in the books of accounts or the documents or transaction represent wholly or partly income which has not been or would not have been disclosed. Thus, the section cannot be applied on the basis of presumptions. It was stated that though the definition is inclusive and not exclusive but its scope has been put under limit due to the use of the words “which has not been or would not have been disclosed”. While relying on the observations made by the Bombay Bench of the Tribunal in the case Sunder Agencies vs. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245, 256 (Mumbai) the learned counsel argued that s. 158BA itself indicate that section deals only with those assessments which concern with the undisclosed income determined as a result of search and seizure operation. It was argued that s. 158BB(2) provides that in computing the undisclosed income the provisions of s. 68 shall apply. It is not a section which described what is undisclosed income. The Madras Bench of the Tribunal in the case J. K. Narayanan (HUF) vs. Asstt. CIT (1999) 64 TTJ (Mad)(TM) 823 : (1999) 69 ITD 104 (Mad)(TM) at 114 has observed that s. 158BB prescribes only the method of computing the undisclosed income of the block period. However, prior to making such computation the existence of undisclosed income as such is required to be shown. It was further argued that the AO has not examined whether during the course of search and seizure operation any incriminating documents, cash, bullion or jewellery was found which suggested undisclosed income so as to make a fresh assessment under s. 158B. It was stated that the management of the appellant companies vested with Kohli group upto asst. yr. 1992-93. The present management took over the business during financial year 1992-93. Since then the differences arose between both the groups and sometimes when the notices were being issued to the present management were not received by them. It was also stated that while making the order under s. 158BA the AO has relied on certain observations/statements of some persons of Kohli group for holding that there was undisclosed income. Actually the appellant companies have taken certain loans from the members of the Kohli group in the past when the management vested with the Kohli group. As the Kohli group was not co-operative with the present management in giving relevant informations for the period when they were controlling the management, the appellants vide their letter, dt. 6th December, 1997 had requested the AO to call the representatives of both the group on the same day so that cross verification of various transactions could be done. Unfortunately the AO called the representatives of Kohli group in the morning and the appellant’s representative in the afternoon. A copy of the letter so addressed to the AO was also filed. The learned counsel stated that it was under these circumstances that the cross verification of various transactions between the appellant companies and the members of Kohil group could not be done. The learned counsel also filed photocopies of the note sheet of the relevant assessment records to prove its contention. While referring to the order under s. 158BA wherein the AO has observed that Shri U. S. Kohli has denied any transaction with the appellant companies, the learned counsel took us to the letter, dt. 10th December, 1997 of Shri U. S. Kohli placed at p. 122 of the paper-book along with a statement was attached which indicated that no transaction was done between the members of the Kohli group with the appellant companies. This letter was initialled by one Shri U. S. Kohli. The learned counsel stated that the fact was otherwise. Actually Shri U. S. Kohli puts his full signature and various documents were filed by the learned counsel to prove this contention. A specific reference was made to pp. 82 and 86 of the paper-book. It was further argued that surprisingly the AO has relied on the annexure attached along with the letter, dt. 10th December, 1997 signed by the so-called Shri U. S. Kohli (p. 122 of the paper-book), he has not bothered to examine the confirmations filed by almost all the creditors of Kohli group whose names find place in the annexure filed along with letter, dt. 10th December, 1997. The learned counsel also filed copies of such confirmations which are placed at pp. 82 to 92 of the paper-book. It was argued that once the confirmation from individual creditors have been filed before the AO giving their permanent account numbers how another person can deny the transaction on behalf of all such creditors. The learned counsel also argued that the AO has not examined these points. The AO has also not given any opportunity to the assessees to cross-examine Shri U. S. Kohli who is supposed to have signed the letter on behalf of all the creditors of Kohli group which has been relied on by the AO. Thus the order passed by the AO suffers from the principle of natural justice.
8. The learned counsel, therefore, argued that the issue could be set aside and restored back to the record of the AO to decide as to whether there was any undisclosed income in the case of each appellant within the meaning of s. 158BA of the Act in the light of the decided cases mentioned above and if so to what extent. The AO may also be directed to issue summons under s. 131 to various creditors including the creditors falling under Kohli group and allow the appellants an opportunity to cross-examine them. On the other hand, the learned Departmental Representative relied on the assessment order and stated that the appellants have not co-operated with the Department at the time of assessment proceedings and in case it is decided to send it back to the records of the AO the appellants may be directed to co-operate with the Department in completion of the assessments under s. 158BA of the Act. The learned Departmental Representative also stated that if the order is being set aside on this issue it will be in the fitness of things if all other issues are also set aside and restored back to the file of the AO to pass an order in accordance with law.
9. We have considered the rival submissions. Admittedly the assessment orders have been passed by the AO under s. 158BA of the Act in respect of both the appellants. Sec. 158B(b) defines the word “undisclosed income”. The Bombay Bench of the Tribunal in the case of Sunder Agencies (supra) at p. 256 has held as under :
“The head note of s. 158BA is : “Assessment of undisclosed income as a result of search”. It indicates that section deals only with those assessments which concern with the undisclosed income detected as a result of search. The meaning of head note conveys nothing more nothing less than this. Now we come to the body of the section. It begins with non obstante clause. It applies for search conducted after 30th June, 1995 under s. 132, etc. The total undisclosed income relating to block period is not subject to ordinary rates of tax. It is subject to the rate specified in s. 113 of the Act, irrespective of the previous year or the year to which such income relates, and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.”
10. We also find that Pune Bench of the Tribunal in the case of Parakh Foods Ltd. vs. Dy. CIT (1998) 64 ITD 396 (Pune) has also considered the definition of the word “undisclosed income” within the meaning of s. 158BB. The Bench at p. 398 has observed as under :
“The contention of the assessee that undisclosed income must be assessed on the basis of material found as a result of search, or other material having nexus with the seized material also could not be accepted. According to the assessee, the words ‘such other material’ used in s. 158BB suggests such interpretation and the word ‘such’ must relate to the preceding words. The word ‘such’ may not necessarily refer to the word or words preceding to it. It is the settled law that words used by the legislature should be interpreted in the manner which advances its object and not which frustrates it. The object of the legislature is to find out all the hidden income of the assessee. Therefore, the word ‘such other material’ has to be understood as ‘any other material’. Interpretation suggested by the assessee would again restrict the natural meaning of the words ‘undisclosed income’.”
11. However, in the same case and on the same page the Bench has observed as under :
“It is clarified if the assessee has disclosed the particulars of income before the date of search and the AO draws an adverse inference and intends to assess the same as income, then such income cannot be treated as undisclosed income. For example, the assessee may claim a particular receipt as not taxable or may claim a particular expenditure as allowable deduction under the provisions of IT Act. In such cases, if the assessee has disclosed particulars of such income or expenditure and the AO intends to take a different view, then such income, cannot be termed as undisclosed income, though the same may be considered for inclusion in the total income during the course of regular assessment or reassessment as the case may be, in accordance with law.”
12. The Madras Bench of the Tribunal in the case of J. K. Narayanan (HUF) (supra) at page 105 while considering similar issue has observed as under :
“Apart from the question as to whether the income as considered in the impugned assessment, was not of the nature as specified in the definition of ‘undisclosed income’ as provided in s. 158B(b), for some income to be undisclosed income it will be required that the said income was not or would not have been disclosed by the assessee to the Department. Evidently the search by itself, had not been able to discover or unearth any other income earned by the assessee during the block period.”
13. If the ratio laid down in the above decisions is applied to the case of the appellants it is clear that the AO has not quantified the undisclosed income assessable in the hands of the appellants under 158BA of the Act. The AO has treated every income even when the same was disclosed earlier, as undisclosed income under s. 158BA of the Act. Certainly while doing so he has not applied his mind to the provisions of s. 158BA.
14. We also find that the AO has made substantial additions under s. 68 of the Act in each case on the basis of a letter purported to be signed by one Shri U. S. Kohli who has confirmed on behalf of various members of the Kohli group impliedly confirming that they did not have any transaction of loans or advances with the appellant companies in different years. But we find that each member of Kohli group has filed confirmation letters individually confirming the transactions with the appellant companies in different years. Thus there is a contradiction between these documents. Actually the learned counsel has challenged the very veracity of documents which has been relied on by the AO. The AO has not reconciled the controversy between these two sets of documents which are contradictory to each other. He has relied on the documents which were against the appellants and skilfully ignored the other documents because these were in favour of the appellants. No plausible reason has been advanced by the AO for doing so. Moreover if there are two sets of documents and the AO chooses to rely on one set he was duty bound to give opportunity to the appellants as to why such set of documents could not be relied upon. But in the instant case no opportunity has been provided by the AO for cross-examination or to rebut a particular document which is relied on by the AO. This is against the principles of natural justice.
15. We also find that the AO has made substantial additions on account of rental income. While doing so he has observed that the appellants were receiving rental income in the past. Merely because the appellants were receiving certain income in the past will not empower the AO to make addition in the years under consideration. It may be mentioned that it is not an order under s. 143(3) but an order under s. 158BA. The scope and limitations of the provisions of s. 158BA have been narrated earlier. The AO has not given any finding as to how he has come to a conclusion that there was undisclosed income within the meaning of s. 158BA of the Act in these years. Considering these facts we feel that the assessment order as a whole in both the cases deserves to be set aside and restored back to the file of the AO to pass an assessment order afresh. While doing so the AO will keep in mind the scope and limit of the word “undisclosed income” within the meaning of s. 158BA of the Act as decided in various cases mentioned above. He will also provide reasonable opportunity to the appellants to submit documents/evidences which they may like to rely upon. We also direct the AO to allow appellants opportunity to cross-examine the members of the Kohli group in case they have denied any transaction with the appellant companies. The assessment order is, therefore, set aside and restored back to the file of the AO along with directions mentioned above.
16. In the result, both the appeals are allowed for statistical purpose.