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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL No. 169/2005
Reserved on :1st November, 2017
% Date of decision:23rd April, 2018
THE COMMISSIONER OF INCOME TAX ......Appellant
Through: Mr. Asheesh Jain, Senior Standing
Counsel with Mr. Shahrukh Ejaz and Mr.
Prashant Bhargava, Advocates for the Income
Tax Department.
Versus
M. S. AGGARWAL .....Respondent
Through Mr. Salil Kapoor, Mr. Sanat Kapoor, Ms.
Ananya Kapoor, Ms. Soumya Singh and Mr.
Sumit Lal Chandani, Advocates.
INCOME TAX APPEAL No. 895/2008
COMMISSIONER OF INCOME TAX ......Appellant
Through: Mr. Asheesh Jain, Senior Standing
Counsel with Mr. Shahrukh Ejaz and Mr.
Prashant Bhargava, Advocates for the Income Tax
Department.
Versus
M. S. AGGARWAL .....Respondent
Through Mr. Salil Kapoor, Mr. Sanat Kapoor, Ms.
Ananya Kapoor, Ms. Soumya Singh and Mr.
Sumit Lal Chandani, Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MS. JUSTICE PRATHIBA M. SINGH
ITA No. 169/2005+connected appeal Page 1 of 77
SANJIV KHANNA, J. :
Afore-stated appeals under Section 260-A of the Income Tax Act,
1961 (Act` for short) have been preferred by the Revenue, the
Commissioner of Income Tax, Delhi (Central)-III.
2. ITA No.169/2005 challenges order of the Income Tax Appellate
Tribunal (the Tribunal, for short) in IT(SS)A. No.52/Delhi/2003 dated 19th
January, 2003 deleting addition of Rs.61,80,000/- as undisclosed income on
merits and also on the ground that this addition could not have been made in
the Block Assessment Order for the period from 1st April, 1989 to 15th
January, 2000.
3. ITA No.895/2008 arises from order of the Tribunal dated 12th October,
2007 in IT(SS)A No.400/Del/2005, whereby the Tribunal has deleted the
penalty imposed by the assessing officer under Section 158 BFA (2) of the
Act on the ground that the additions made in the Block Assessment Order
were set aside by the Tribunal vide order dated 19th January, 2003.
4. By order dated 23rd May, 2005 ITA 169/2005 was admitted and the
following substantial question of law was framed:-
Whether the Income Tax Appellate Tribunal was
correct in law in deleting an addition of Rs.51,00,000/-
being the undisclosed income although the assessee
himself admitted in his statement before the Income
Tax Authorities that he had paid money to buy these
gifts?
5. By order dated 6th September, 2010 ITA 895/2008 was admitted and
the following substantial question of law was framed for consideration, with
the direction that the two ITAs would be heard together:-
ITA No. 169/2005+connected appeal Page 2 of 77
Whether the ITAT was correct in law in deleting an
addition of Rs.51,10,000/- being the undisclosed
income although the assessee himself admitted in his
statement before the Income Tax Authorities that he
had paid money to buy these gifts?
6. With the consent of counsels for the parties, we had reframed the
substantial question of law vide order dated 31 st October, 2017 to the
following effect:-
"1. Whether the Income Tax Appellate Tribunal
was correct in law in deleting the addition of
Rs.51,00,000/- (Rupees Fifty One Lacs) as undisclosed
income and accepting the case of the assessee that he
has been able to establish genuineness of the gift?
2, Whether the Income Tax Appellate Tribunal was
right in holding that the Assessing Officer could not
have added the income of Rs.51,00,000/- as
undisclosed income in the Block assessment
proceedings under chapter XIV B of the Income Tax
Act, 1961?"
It was also clarified in the said order that the first question includes the issue
whether the decision and reasoning of the tribunal is perverse or not.
Substantial questions of law primarily relate to and arise in ITA
No.169/2005. Decision in ITA No.895/2008 would be consequential to the
decision of this Court in ITA No.169/2005. The substantial question of law
in ITA No. 895/2008 should appropriately read as under:-
Whether ITAT was correct in law in deleting the
penalty imposed by the Assessing Officer under
section 158 BFA(2) of the Act
ITA No. 169/2005+connected appeal Page 3 of 77
7. Search and seizure operations under Section 132 of the Act were
conducted on 25th November, 1999 in the case of BSL Group and Mr. M.S.
Aggarwal, who has been hereinafter referred to the respondent/ assessee.
8. During the course of search, several incriminating documents and
material were found and seized. The respondent /assessee was carrying on
benami business in the name of M/s. Universal Enterprises, M/s. Vishal
Vyapar, M/s. Kumar Traders, M/s. Nutan Enterprises, M/s. Krishna Traders
and M/s. Evergreen Corporation, which were not accounted for and reflected
in the books of accounts. These firms were trading in acrylic sheets, off-cuts
and scrap. As per the Revenue on the basis of the papers and documents
found during search, these benami entities belonging to the
respondent/assessee had unaccounted for turn-over of over
Rs.26,35,25,144/-.
9. Respondent /assessee in his statement recorded on oath under Section
132(4) of the Act on 25th November, 1999 admitted having procured, in the
current year, gifts of Rs.50,00,000/- and Rs.10,00,000/- from Mr. Kamlapati
Singhania, resident of Kamla Tower, Kanpur, U.P in his name and in the
name of M/s. Gupta & Sons (HUF). These gifts were arranged by the
respondent/assessee's Chartered Accountant, Mr. V.K Goel of M/s. V.K.
Goel and Co., to whom the respondent/assessee had paid Rs.60,00,000/- in
cash. Mr. V.K Goel was also paid 3% commission for arranging the gift.
Respondent/assessee confessed that he had never met Mr. Kamlapati
Singhania, an industrialist based in Kanpur and Chairman of J.K. Synthetic
and J.K. Cement. The respondent/assessee or his family members did not
know Mr. Kamlapati Singhania personally. Respondent/assessee knew of no
reason why Mr. Kamlapati Singhania had given him and his HUF gifts of
Rs. 50,00,000/- and Rs.10,00,000/-, respectively. This was the only gift
ITA No. 169/2005+connected appeal Page 4 of 77
which the respondent/assessee had received in the last 10 years.
Respondent/assessee himself had not given gift during the last 10 years.
Respondent/assessee in his subsequent statement recorded under Section
131 of the Act on 6th January,2000 had again accepted and admitted that the
gifts were bogus and had offered the same to be taxed. For clarity, we have
subsequently reproduced entirely or relevant portions of the statements on
oath made by the respondent/assessee on 25th November, 1999, 29th
December, 1999 and 6th January, 2000.
10. Pursuant to notice under Section 158 BC dated 20th November, 2001,
the respondent assessee filed block return for the block period on 4th
January, 2002 accepting and declaring undisclosed income of Rs.86,82,110/.
11. During the course of the block assessment proceedings, the
respondent/assessee vide letter dated 13th March, 2002 retracted his
admission on bogus gifts, asserting that the gift of Rs.50,00,000/- given to
him by Mr. Rama Pati Singhania was genuine and not procured. The gifts
were given by way of two cheques dated 8th May, 1999 and 12th May, 1999
of Rs.25,00,000/- each, drawn on Hong Kong & Shanghai Banking
Corporation Limited. Mr. Rama Pati Singhania, who was a regular assessee
with the Income Tax Department, Kanpur, had sold his residential flat at
Bombay for Rs.2,75,00,000/- for which he had obtained clearance from the
Income Tax Department. Mr. Rama Pati Singhania had duly disclosed the
gift in his assessment proceedings. Admissions recorded on 25th November,
1999 were dictated confession, extracted and feigned as the
respondent/assessee wanted to be free and leave his residence to attend a
family function. His signatures were taken wherever the search party felt
necessary. Respondent/assessee it was stated was ailing, and subsequently
ITA No. 169/2005+connected appeal Page 5 of 77
on medical advice was admitted to a nursing home and discharged on 3rd
December, 1999.
12. The assessing officer rejected the volte face after referring to the
statement of the respondent/assessee dated 25th November, 1999 under
Section 132 (4) of the Act, admitting that the gifts were sham and
subterfuge. He rejected the contention that the confession was extorted
under coercion, pressure and duress observing that the retraction and
explanation justifying the gift was given for the first time in March, 2002.
Respondent/assessee in his subsequent statement under Section 131 of the
Act recorded in the presence of his counsel on 6th January, 2000, unwilling
go into details and justify the alleged gifts to himself and the HUF had
voluntarily offered the gift amounts for taxation. Thus, in January, 2000, 40
days post the search, the respondent/assessee had again confessed and
accepted that the gifts were bogus and should be considered as undisclosed
income.
13. The assessing officer vide Block Assessment Order dated 27th March,
2002 made an addition of Rs.61,80,000/- treating gifts of Rs.50,00,000/- and
Rs.10,00,000/- in favour of the respondent /assessee and M/s.Gupta and
Sons (HUF), respectively, as bogus and undisclosed income. Rs.1,80,000/-
statedly paid as commission to arrange the gifts was added to treat
Rs.61,80,000/- as undisclosed income.
14. Block assessment order refers to incriminating documents found and
seized during the course of search and observed that the respondent
/assessee had unaccounted business turnover of Rs.26,35,25,144/- from the
six benami concerns, consisting of undisclosed sales recorded in bank
accounts of Rs.18,80,71,883/- and cash sales of Rs.7,54,53,311/- recorded in
ITA No. 169/2005+connected appeal Page 6 of 77
seized Annexures A-40, 42 and 46. The assessing officer applying net profit
rate of 5%, had estimated undisclosed income from the said turnover at
Rs.1,31,76,257/-. This computation it was observed would match the sum
total of undisclosed income declared by the respondent/assessee of
Rs.82,82,110/-, arranged gift of Rs.50,00,000/- in the name of the
respondent /assessee, arranged gift of Rs.10,00,000/- in favour of M/s.
Gupta & Sons (HUF) and the commission of Rs.1,81,000/- for arranging the
gifts.
15. The Commissioner of Income Tax (Appeals) affirmed the additions
made, observing that the respondent /assessee had voluntarily offered the
gifts for taxation during the course of search. There was no coercion. The
second statement was recorded 40 days after the search in the presence of
his counsel. There was corroborative evidence that the said gifts, though
paid by cheques, were sham and arranged for as search party had found
documents that the respondent/assessee was doing business through benami
concerns, which had undisclosed sales turnover of Rs. 26,35,25,144/-,
including sales through bank accounts of Rs. 18,80,71,883/-.
Respondent/assessee with this unaccounted turnover could have bought the
gifts as was accepted by him on two occasions. Interestingly, the
respondent/assessee to justify the gifts had stated that the gifts "may" have
been made because of assistance given by his forefather to the forefather of
the donor. Submission was rejected as hypothetical as the
respondent/assessee had used the word "may". Further, it was unlikely that
Mr. Rama Pati Singhania would have given a gift to the respondent/assessee,
whom he had never met. The respondent/assessee in the first statement did
not even know the correct name the donor. If the respondent/assessee had
ITA No. 169/2005+connected appeal Page 7 of 77
indeed received the gift of the high amount he would have known the name
of the donor.
16. The Tribunal in the impugned order dated 19th January, 2003 has
deleted the entire addition of Rs. 61,80,000/- including additions made on
account of gift of Rs.50,00,000/-. In paragraph 28 of the impugned order
the Tribunal records that three questions had arisen for consideration. The
first was whether the addition of Rs. 61,80,000/- on account of the gifts and
the commission could have been made in the block assessment order, being
undisclosed income as defined under Section 158BB of the Act. The second
question was whether the admission made by the assessee that the gifts were
arranged and an equivalent amount had been paid in cash would constitute
conclusive and final evidence against the assessee; and thirdly, if the second
question was answered in favour of the respondent/assessee, then whether
the respondent/assessee had succeeded in disproving the admission and
establishing the genuineness of the gifts.
17. On the first question, the tribunal had held as under:-
29. The first issue as indicated above concerns the
scope and ambit of undisclosed income as
contemplated under Chapter XIV B of the Income-tax
Act. Chapter XIV-B consisting of sections 158B to
section 158BH was introduced by the Finance Act,
1995 with effect from 1.7.1995 to make procedure of
assessment of search cases more effective. The chapter
is titled Special procedure for assessment of search
cases. The scheme of block assessment enacted under
this chapter laying down procedure for block
assessment proceedings is intended by the legislature
to operate simultaneously with the normal and regular
scheme of assessment indicated under Chapter XIV of
the Income-tax Act. Both the tax schemes are
independent of each other and they are not mutually
ITA No. 169/2005+connected appeal Page 8 of 77
exclusive. Block assessment under Chapter XIV-B is
not intended to be a substitute for regular assessment.
Its scope and ambit is limited in that sense to materials
unearthed during search. It is in addition to regular
assessment already made or to be made. Clause (b) of
section 158B contains inclusive definition of
undisclosed income and reads as under:
(b)undisclosed income includes any
money, bullion, jewellery or other valuable
article or thing or any income based on any
entry in the books of account or other
documents or transactions, where such
money, bullion, jewellery, valuable article,
thing, entry in the books of account or other
document or transaction represents wholly or
partly income or property which has not been
or would not have been disclosed for the
purposes of this Act { or any expense,
deduction or allowance claimed under this
Act which is found to be false.}.
If we analyse the aforesaid definition, it provides that
undisclosed income includes-
(i) Any money, bullion, jewellery or other
valuable article or thing or,
(ii) any income based on any entry in the
books of account or other documents or
transactions;
(iii) such money, bullion, jewellery, valuable
article, thing, entry in the books of account
or other documents or transactions represents
wholly or partly income or property;
(iv) which has not been or would not have
been disclosed for the purposes of this act.
From the aforesaid analysis of the definition, it
clearly emerges that if any asset or any income as
recorded in the books or documents has been disclosed
or intended to be disclosed to the Income-tax
ITA No. 169/2005+connected appeal Page 9 of 77
authorities, this would be outside the pale of
undisclosed income as defined under clause (b) as
above.
30. We may next refer to section 158BB which
provides for computation of undisclosed income or
block period. The section expressly and unequivocally
provides that the undisclosed income has to be
computed on the basis of evidence found as a result of
search... and such other materials or information as are
available with the AO and relatable to such evidence.
The expression relatable to such evidence has been
inserted by the Finance Act, 2002 retrospectively w.e.f.
1.7.1995. A bare reading of this provision would
indicate that undisclosed income has to be computed
on the basis of evidence and material found during
search. Any material or evidence available to the
Assessing Officer which is not related to the search
would not form the basis for computation of
undisclosed income.
18. On the second question, the tribunal had held as under:-
31. The issue regarding the jurisdiction of the
Assessing Officer to consider the genuineness of the
gift transaction and treat such gifts as undisclosed
income would be required to be considered in the
backdrop of the aforesaid legal position. The facts are
undisputed that no evidence has been found during the
course of search which may impeach the genuineness
of the gifts received by the assessee and his HUF from
Shri Rampathi Singhania. No documents or papers
have been found during search proving that the gifts
are non-genuine. The main stay of the Department`s
case is the statement of the assessee recorded on
25.11.99 and 6.1.2000 admitting the gifts to be non-
genuine. First statement dated 25.11.99 is placed in
the paper book filed by the Id. Sr. DR at pages 4 to 21.
A part of the statement from pages 1 to 10 upto
Question No. 19 and Answer thereto has apparently
been recorded prior to the commencement of search
and is a preliminary statement. Subsequent portion of
ITA No. 169/2005+connected appeal Page 10 of 77
the statement has apparently been recorded after the
commencement of the search proceeding inasmuch as
prior to recording Question No. 20, the authorized
officer has recorded the title statement taken during
the course of search. In fact, the Assessing Officer
has referred to the statement as preliminary statement
at page 5 of the block assessment order. From these
facts, it is amply evident that statement of the assessee
admitting the gifts to be non-genuine has been recorded
before the commencement of the search and cannot
conceivably be construed as a statement u/s 132(4) of
the Income-tax Act. The decision of Allahabad High
Court in R.R. Gavit Vs. Smt. Sher Banu Hasan Daya
161 ITR 793 support the view taken by us. The
statement of admission dated 25.11.99, which is the
sole basis adopted by the Assessing Officer for
bringing the gifts within the purview of undisclosed
income u/s 158BB for the purposes of block
assessment cannot thus be treated as evidence found as
a result of search. We are, therefore, of the view that
the genuineness of the gifts cannot possibly be treated
as covered within the limited scope and purview of
undisclosed income under the block assessment. On
this legal ground alone, the impugned addition of
undisclosed income treating the gifts as non-genuine is
held to be outside the purview of block assessment and
liable to be deleted.
19. Turing to the third question, the tribunal observed as under:-
32. We may next consider the facts concerning
the gifts received by the assessee and his HUF in the
context of definition clause, namely, section 158B(b)
which defines the undisclosed income as reproduced
above. The important limb of the definition which
constitute the basic essence is income or property
which has not been or would not have been disclosed
for the purpose of the act. In the case of L.R. Gupta
Vs. Union of India 194 ITR 32, the Delhi High Court
while construing the expression undisclosed income as
used u/s 132 (1) has held that the income which is
hidden from the Department is undisclosed income. In
ITA No. 169/2005+connected appeal Page 11 of 77
the instant case before us, gifts have been received by
the assessee and his HUF by account payees cheques
which have been duly deposited into the bank account
as reflected at pages 109 and 111 of the first paper
book filed by the assessee. From these bank accounts,
the assessee and his HUF have issued cheques for
making advances to the sister concerns, namely,
Haryana Acrylic company Pvt. Ltd. and Mono Acrylic
Manufacturing Co. Pvt.Ltd. Both these companies are
existing assesses and amounts advanced by the
assessee and his HUF have been duly credited in the
books of account of the said companies. Copies of
bank accounts of these two companies as well as
copies of accounts of the assessee in the books of the
said companies have been duly furnished during the
course of assessment proceedings before the Assessing
Officer and are placed in the assessee`s first paper
book at pages 112 to 125. Assessee and his family
members are promoters, directors and shareholders in
these companies and the amounts advanced by the
assessee out of the gifts have been duly entered in their
books of account and accepted in their tax assessments.
Similarly with regard to source of the gift amount, we
find that Shri Rampati Singhania is a leading
industrialist belonging to Juggi Lal Kamalapath
Singhania family of Kanpur. The donor has sold his
property in Bombay for a sum of Rs. 2.75 crores and
has received clearance from Income-tax Department in
Form No. 34A and 37I for the sale of the property.
Further Income-tax as well as Wealth-tax assessment
of the donor for the assessment year 2000-2001, during
which the gifts in question have been made have been
completed after scrutiny in Central Circle, Kanpur by
the Officer of the rank of the Joint Commissioner of
Income-tax. All such documents were provided to the
Assessing Officer during the block assessment
proceeding and also form part of the paper book filed
before us. Ld. Counsel has drawn our attention to gift
deed dated 20th June, 1999 as well as 30th May, 1999
which were executed by the donor as well as the donee
and produced during the assessment proceedings
ITA No. 169/2005+connected appeal Page 12 of 77
before the Assessing Officer. Shri Rampati Singhania
has sworn affidavit dated 13.5.1999 and 20.6.1999
much before the search and these affidavits have been
filed during the block assessment proceedings and are
placed in the first paper book filed before us. From
these facts, it is amply evident that the gift transactions
are duly disclosed and accounted for in the books of
account of the donor as well as the donees. These
transactions cannot be considered as secret, hidden or
concealed. The surrounding facts and circumstances
like routing the transactions through regular banking
channels by the donor and the donees and accounting
for all the amounts in their respective books of account
and further gifts being evidenced by gift deeds as well
as the affidavits of the donor provided ample evidence
that the transactions are disclosed and accounted for
and lie outside the pale of the definition of undisclosed
income as contained u/s 158B(b). We feel that the
gifts in question have been duly disclosed and reflected
in the books of account as well as tax returns of the
donor and the donees. Such transactions would clearly
fall outside the purview of block assessment. On this
ground also, the impugned addition as undisclosed
income in the block assessment is liable to be deleted.
33. Thus, the first issue regarding the
applicability of section 158B(b) to the gifts in question
is decided in favour of the assessee and we hold that
the issue of genuineness of the gifts lies beyond the
purview of the block assessment.
34. The second and third issue as formulated by
us above, arising from the present appeal, are basically
concerned with the genuineness of the gifts in question.
Without prejudice to our finding that the issue of
genuineness of gifts lies outside the purview of block
assessment as envisaged under Chapter XIV-B, we
proceed to consider this aspect of the controversy also.
The sheet anchor of Department case is the admission
made by the assessee that the gifts are non-genuine and
have been arranged through a Chartered Accountant on
payment of commission@ 3% Ld. Counsel was at
ITA No. 169/2005+connected appeal Page 13 of 77
pains in emphasising that the statement has been
procured by the assessee under coercion and pressure
and is contrary to CBDT`s instruction issued in march,
2003 pursuant to Kelkar Committee Report wherein
the Committee has acknowledged the prevalence of the
practice amongst the search parties to obtain forced
confessions of undisclosed income from the assessees.
The proposition is well established that admission
made by an assessee during search operations
constitute substantive evidence in view of sections 17
and 21 of the Evidence Act. However, such admission
cannot be considered as conclusive evidence against
the assessee. It has been held by the Apex Court in
Pullangode Rubber Produce Co. Vs. State of Kerala 91
ITR 18, relied upon by the Id. counsel, an admission
is an extremely important piece of evidence but it
cannot be said that it is conclusive. It is open to the
assessee who made the admission to show that it is
correct.
35. Reference may further be made to the decision of
Delhi High Court in S. Arjun Singh Vs. CWT 175 ITR
91, cited by the Id. Counsel where a similar proposition
has been laid down. The Punjab & Haryana High
Court in Kishan Lal`s case 88 ITR 293 have taken the
same view and observed, it is an established principle
of law that a party is entitled to show and prove that
admission made by him is in fact not correct and true.
Such admission raise a presumption against the persons
making the admission but such presumption is
rebutable.
36. A very heavy onus lay upon the assessee to refute
and controvert the admission made at the time of
search operation. In the instant case before us,
documents and evidence filed by the assessee during
the course of assessment proceedings before the
Assessing Officer to which reference has been made
hereinbefore by us amply established that the gifts in
question have been made by Shri Rampati Singhania, a
leading industrialist of Kanpur belonging to J.K. Group
and such gifts are evidenced by gift deeds duly
ITA No. 169/2005+connected appeal Page 14 of 77
executed before the date of the search. Source of the
gift, creditworthiness of the donor as well as
genuineness of the transactions have been established
by filing the copies of the bank account of the donor
showing credit of sale proceeds of the property as duly
reflected in the Income-tax and Wealth tax
assessment of the donor. With regard to the mass of
evidence filed by the assessee before the Assessing
Officer, the revenue authorities have not been able to
assail or refute such evidence while treating the
impugned gifts as non-genuine. Even before us, the Id.
Sr. DR when called upon to comment upon such
evidence fairly conceded that Income-tax and Wealth-
tax assessment in the case of Shri Rampati Singhania
donor have been made by the Joint Commissioner of
Income-tax, Central Circle after the search operations
accepting the return version.
37. With regard to the addition of Rs. 1,80,000/-
on account of alleged commission paid by the assessee
for arranging the gifts, we have not been told as to
whom the alleged commission has been paid. No
documents have been found during search operations
to the effect that any intermediatory was involved in
these transactions. Neither any enquiry has been made
by the revenue authorities regarding the identity of the
alleged intermediatory who is reportedly a Chartered
Accountant. The addition in the block assessment has
apparently been made merely on the basis of
preliminary statement dated 25.11.1999 and 6.1.2000
which have been disproved by the assessee by filing
substantial documentary evidence including gift deeds,
copies of bank accounts. Income-tax and Wealth-tax
orders of the donor as well as sworn affidavit of the
donor. We feel that the assessee has discharged the
onus to disprove the admission regarding genuineness
of the gift transactions.
38. At this stage, we may refer to the contention of the
Id. Sr.DR that there was no occasion or relationship
between the donor and the donee for making the gifts
in the instant case. In our considered view genuineness
ITA No. 169/2005+connected appeal Page 15 of 77
of the gift transaction has to be considered on the basis
of attendant facts and circumstance of the case like
identity of the donor, financial capacity and factum of
the transaction. Even though relationship between the
donor and the donees as well as the occasion for the
gift may be relevant circumstances for adjudication of
the issue of genuineness of the transaction yet no
inference can be drawn merely on the basis of surmises
and conjectures. Relationship or occasion for the gift
are not in any case essential elements as engrained in
the definition of gift under the Gift Tax Act. The view
taken by us is amply reinforced by the decision of
Chandigarh Bench of the Tribunal in the case of R.K.
Syal Vs. ACIT 66 TTJ 656 cited by the Id. Counsel . In
this decision, the Chandigarh Bench held as under:
The gifts made cannot be rejected merely
on the ground that there was no occasion or
relationship for making the same. The
element close relationship or occasion for
making gift do not flow from the definition
of gift as given in Sec.2 (Xii) of the Gift Tax
Act. The conditions laid down there are
there should be transfer by one person to
another of any existing movable or
immovable property, the transfer should be
voluntary and should be made without
consideration of any money.
39. At this stage, we may also refer to the observations
of the Delhi High Court in the case of CIT Vs. Sunita
Vacchani 184 ITR 121 as refereed by the Id. Counsel.
The Hon`ble high Court observed, The Tribunal has
examined the evidence which was available on the
record and has arrived at the aforesaid findings. Even
though it may be surprising as to how large sums of
money are received by a family in India by way of gifts
from strangers from abroad, unless there is something
more tangible than suspicion, it will be difficult to
regard the moneys received in India from abroad as
money representing the income of the assessee in
India. On the facts as existing on the records, we are
ITA No. 169/2005+connected appeal Page 16 of 77
unable to come to the conclusion that any question of
law arises. The petition is dismissed.
40. Having regard to the aforesaid discussions, we feel
that the assessee has succeeded in disapproving the
admission regarding the genuineness of transaction and
adequate evidence has been brought on record to
establish the genuineness of the gifts.
Genuineness of the gift of Rs.50,00,000/- made to the
respondent/assessee.
20. Before we examine the legal issue relating to difference between
regular and block assessment, we would like to examine the aspect of
genuineness of the gift, which we would hold is a mixed question of law and
fact. Onus to prove that the gifts were genuine would be on the
respondent/assessee, the facts being in the exclusive and personal
knowledge of the respondent/assessee. If we uphold findings of the
Tribunal that the gift was genuine, the legal question whether addition
should have been made as undisclosed income in block assessment or as a
disallowance in the regular assessment need not be decided. Finding on
genuineness of the gift would also form the foundation of facts to answer the
issue of regular and block assessment.
21. We would begin by reproducing for clarity entire statement of the
respondent/assessee recorded on oath under Section 132(4) of the Act on
25th November, 1999, which is as under:-
Statement of Shri Mahender Singh Aggarwal s/o Sh.
Mangat Ram Aggarwal aged 54 years R/0 2/34 Roop
Nagar Delhi recorded on oath during the search and
seizure operation u/s 132 of the Income-tax Act, 1961
on 25.11.99 at 2/34 Roop Nagar, Delhi.
Sd/-25.11.99 Sd/- 25.11.99
ITA No. 169/2005+connected appeal Page 17 of 77
(MS Aggarwal) Pawan K. Kumar IRS
Oath Taken Dy. Director of Income tax
(Inv) Unit-II,
E/2, ARA Centre Jandewalan Extn.,
New Delhi 110055
Oath Administered
Q.1 Please identify yourself
Ans. I am Mahender Singh Aggarwal s/o Sh. Mangat
Ram Aggarwal aged 54 years R/o 2/34 Roop Nagar,
Delhi.
Q.2 Please give the details of your bank lockers in
your name or in the name of your family members?
Ans. My wife Smt. Prabha Aggarwal has a locker
in Indian Overseas Bank, Model Town, Delhi. I will
be giving the key of locker. Second locker is in name
of Sanjay Aggarwal and Monica Aggarwal in Punjab
National Bank, Subzi Mandi, Delhi locker No. 933.
Q.3 Please give details of your and yours family
members` immovable properties.
Ans. We have following immovable properties:
1. House at Anscestral
2/34, Roop property
Nagar,
Delhi
2. Godown In my
at Khasra name
No. 53.
Siraspur,
Delhi
3. Factory
28 Delhi
Rajasthan Acrylic
Udyog
Nagar,Delhi
4.Factory at In name
Vill.- Bad of
Malik Haryana
Acrylic
ITA No. 169/2005+connected appeal Page 18 of 77
Sonepat,
Haryana.
5. Factory In name
at Village of Delhi
Dhaturi Acrylic
Distt.
Sonepat ,
Haryana
6. Land at In my
Near Vill name
Bhondsi
Gurgaon
(One Acre)
7. Plot (200
Sq. Yards)
in Narela In my
Housing name
Scheme
There is not other immovable property my name or
in name of my family members or our business
concerns.
Q.4. Have your or your family members received
and gift during the last ten years?
Ans. I have received a gift of Rs. 50,00,000/- in
Indian rupees from Sh. Kamla Pati Singhania R/o.
Kamla Tower, Kanpur UP in this year.
Q.5 How do your know Sh. Kamlapati Singhania?
Ans. I know him through our chartered accountant
Sh. V.K. Goyal of V.K. Goyal & Co. (CA) Sixth
Floor Amba Deep Building, New Delhi.
Q.6 What is the source of livelihood of Sh.
Kamlapati Singhania?
Ans. He is industrialist of J.K. Group of companies
based in Kanpur and he is the chairman of J.K.
Synthetic and J.K. Cement.
Q.7 Have you ever met Sh. Kamlapati Singhania?
Ans. No, never
ITA No. 169/2005+connected appeal Page 19 of 77
Q.8 Have you given any gift to any person during
the last ten years?
Ans. No, never
Q.9 Have you or your family members given any
gift to Sh. Kamlapati Singhania or his family
members?
Ans. No, never.
Q10. Can you give any reason which prompted Sh.
Kamlapati Singhania to give this gift to you?
Ans. I don`t know the reason.
Q.11 Do you want us to accept that Sh. Kamlapati
Singhania has given you a gift of Rs. 50,00,000/-
without knowing you, without any relationship and
without any basis. Please comment. I would like to
explain to your that if you give a false statement you
are liable to be prosecuted.
Ans. This gift was arranged by my CA Sh. V.K. Goyal
for 3% commission. Besides this I have given Rs.
50,00,000/- incase to Sh. V.K. Goyal.
Q.12 Do you maintain any books of accounts? If
yes, please tell where are the same lying.
Ans. Books of accounts for my business concern are
maintained. All the books of my companies/business
concerns are lying in office located here at ground
floor 2/34, Roop Nagar, Delhi. Following are the
business concerns.
1. Delhi Acrylic Manufacturing Director:
Co. Pvt. Ltd., 28, Rajasthan, (i) Sanjay
Udyog Nagar Aggarwal
(ii) Prabha
Aggarwal
2. Haryana Acrylic Director:
Manufacturing Co. Pvt. Ltd. (1) Sanjay
20th Mile Jatheri Road, Vill. Aggarwal
Bralmalik Sonepat, Haryana (2) Prabha
Aggarwal
(3) Bhupender
Nath R/o.C-186,
Pushpanjali
ITA No. 169/2005+connected appeal Page 20 of 77
Enclave
3. Mono Acrylic Manufacturing Director:
Co. Pvt. Ltd 53, Gurudwara (1) Manish
Road, Siraspur, Delhi Aggarwal
(2) Sanjay
Aggarwal
4. M.S. Marble & Granite Co. Director:
Pvt. Ltd., 28, Rajasthan Udyog (1) S.S. Garg,
Nagar, Delhi Manager
(2) Bhupender
Nath
5. Acry Monomour Pvt. Ltd. Director:
Vill. Dhaturi, Sonepat, Haryana (1) Sanjay
Aggarwal
(2) Manish
Aggarwal
Q13 What are your source of income?
Ans. Investment in shares of the companies mentioned
in answer to the Question no. 12 is the only source of
my income.
Q.14 Give full details of your family members, age,
occupation residence and their source of income. Also
state their income tax particulars, if any.
Age Occupatio Source
n of
income
Myself M.S. Age -54 Business
Aggarwal yrs.
2/34, Roop
Nagar
Wife Prabha Age 45 Business Salary
Aggarwal yrs from
Delhi
Acrylic
Son Sanjay 31 yrs. -- do -- Salary
Aggarwal from
Haryana
ITA No. 169/2005+connected appeal Page 21 of 77
Acrylic
Daughter Monica 29 yrs House NIL
in law Aggarwal wife
Son Manish 24 yrs Business Salary
Aggarwal from
Mona
Acrylic
Daughter Ritu 21 yrs. House-
in law Aggarwal wife
w/o.
Sh.Manish
Aggarwal
M.S. Aggarwal (myself), Prabha Aggarwal, Sanjay
Aggarwal and Manish Aggarwal are assessed to tax.
Other income tax particulars I will given later on.
Q. 15. Please give details of bank accounts, FDR,
share investment, and other investments including
investment in moveable properties in your name and in
name of your family members?
Ans. Details of Bank account is as under:
Name of Account Bank`s Name Nature
Holder and a/c.
No.
1. Delhi Acrylic Indian Bank, Pahar Ganj Current
(D.B. Road) Delhi 2752
2. Haryana Acrylic -- do -- Current
1825
3. Mona Acrylic -- do -- Current
2958
4. M.S. Marbles Canara Bank, Subzi Current
Mandi, Delhi 1192
5. Acry Monomers India Bank Phara Ganj -- do --
6. M.S. Aggarwal Indian Overseas Saving Saving
Bank, Model Town
(ii) IOB Roop Nagar Saving
7. Sanjay Aggarwal IOB Roop Nagar Saving
15175
8. Monica Aggarwal -- do -- Saving
15176
9. Prabha Aggarwal IOB Model Town -- do --
10. Sanjay Aggarwal Punjab National Bank, -- do --
ITA No. 169/2005+connected appeal Page 22 of 77
& Monica Aggarwal Ghanta Ghar
11. Manish Aggarwal IOB Model Town -- do --
12. Haryana Acrylic Canara Bank, 15-A, 1145
Mft. Co. Pvt. Ltd. Opp. Birla Mill, Kamal
Nagar
FDRs - There is no FDR in my name or in the name of
my family members or business concerns.
Investment in shares - Neither my family member nor
me have ever invested in shares of any company except
our family companies .
We have following vehicles:-
1. DL1CF 1695 Esteem Haryana Acrylic`s
a/c.
2. DL 8C 9495 Opel Delhi Acrylic`s a/c.
3. 4738 Zen Mona Acrylic`s a/c.
4. 3721 M.V. --
5. 2658 M.V. --
There is no other investment in my name or in the name
of my family member.
Q. 16. How much cash jewellery and other valuables
are lying in this premises ?
Ans. About Rs.4,00,000/- in cash and jewellery of
about 70 tolas is lying in this premises.
Q. 17 Do you know M/s. Loe Ram Munshi Ram
Shroff ?
Ans. Yes, I know . it is business concern of my brother
Mr.Munshi Ram and My grandfather Sh. Leo Ram (
Late ) . The address of the firm is Baratooti Chowk
,Sadar Bazar , Delhi (ph: 7771630). My brother Sh.
Munshi Ram resides at 2/80 Roop Nagar, Delhi
Q. 18 Do you, your family members have any bank
account outside India?
Ans. No. There is no foreign bank account in my name
or in name of my family members . No bank account
outside India is being maintained by me or my family
members
Q. 19 Whether you have received or borrowed any
cash / jewellery from anybody for business purpose or
ITA No. 169/2005+connected appeal Page 23 of 77
otherwise or kept any valuables , money or contains as
amanat , which is not recorded in the regular books of
account. Please give the details and evidence thereof?
Ans. No cash belonging to any other person or cash
received or borrowed from anybody is lying in this
premise. However some jewellery belonging to Mrs.
Shashi w/o Anil Aggarwal is lying here in this
premises.
Sd/-
25.11.1999
Statement taken during the course of search
Q.20 During the course of search we have found two
diaries marked Neel Gagan Note book which contains
detailed account of receipt and payment during the
F.Y. 1997-98 and 1998-99 . Please explain the nature
of transaction.
Ans. These transaction relate to M/s. Universal
Enterprises which run and controlled by me through
Sh. Vipin Bansal R/o South Exten. ( the exact no, I will
furnish later on )
The nature and detail of transactions are nothing
but import of acrylic sheet by this entity which are
being sold in open market on cash basis. The purchase
are being made through Indian Bank, Pahar Ganj
Branch in which deposits are made in cash and
consequently the sale are made on cash basis and
rotated through this bank.
Q. 21 Please explain where are the books of accounts
for M/s. Universal Enterprises for the last three years
and current year.
Ans. No books of account are maintained for this
concern and the stock lying at Siraspur (most of the
stock) belong to M/s Universal Enterprises and some
of the stock relates to M/s. Mono Acrylic Pvt. Ltd.
(MAMPL) and M/s. Haryana Accrylics Manufacturing
Co. Pvt. Ltd. ( HAMCPL)
Q. 22 What is the present purchase price of imported
acrylics Sheet and sale price in domestic market for the
same.
ITA No. 169/2005+connected appeal Page 24 of 77
Ans. It varies from 300 to 500 dollars / ton
depending upon thickness , size and colour of sheet
for import. Sale price of sheet varies from Rs. 30 to
50 per Kg. in domestic market depending again on
the same parameters.
Q.23 Please explain as to what are expenses incurred
on the items imported before being sold in market
and con sequent profit margin on sale of items.
Ans. There is about 85% of the CIF incurred expenses
which include 73% as custom duty and 12% misc.
expenses. This leaves 15% margin of profit on sale.
The break this as follows:
CIF / Kg. Rs.14
Duty / Kg. Rs.10
Other Expenses Rs.2
(Transportation
etc.)
Rs.26
Balance Rs.4/- per kg. is profit
Q.24 Whether same processing are done on the
material imported or the same is directly sold.
Ans. There is no processing operation done on the
material imported. The imported goods are sold
after sorting & cutting to saleable size whose cost
has already included in other expenses mentioned
above.
Q. 25 What is the total turnover of M/s. Universal
Enterprises per year during the last three years.
Ans. This entity done business only during about last
two years and the average turnover per year is about
Rs. 1.5 crores per year.
Q. 26 Please explain whether any sales tax or income
tax has been paid on the sale and income earned
through this entity.
Ans. The sale of imported acrylic sheet attract 4%
sales tax and since no books of regular accounts are
maintained hence no income tax return for the income
earned through this entity has been declared in my I.
Tax return. Also no sales tax has been deposited.
ITA No. 169/2005+connected appeal Page 25 of 77
However, a memorandum record in shape of diary is
maintained which has been found during the search.
Q. 27 I am showing you small diaries marked as
Annexure A-40 to A-46 wherein C1, C-2 , C3 to C-14
have been written alongwith the names to whom
payments have been made . Please explain the nature
of these codes.
Ans. These codes relate to the various persons handling
cash in various places of the company. For example
C-3 relates to Mr. Umesh , the person handling cash
affairs in Siraspur, C-10 is the person namely Mr.
Mishra who is handles cash at 2/34 Roop Nagar ,Delhi
C-5 -- relates to Vijay Gupta at 28, Rajasthani Udyog
Nagar, C-8 relates to Jarnail Singh who handles cash at
Q. 28 I am showing you key No. 323 Godrej found
during the course of search from the almirah of your
bed room. Please give the name of the bank and loker
to which it belongs.
Ans. This key may belong to a locker I had in Indian
Overseas Bank , Roop Nagar, Delhi in my previous
wife name i.e., Pushpa AGgarwal which is currently
in operative after the death of my wife for the last
seven years.
Q.29 Please confirm whether you or your family
member have a bank locker in 10B, Roop Nagar,
Delhi.
Ans. To the best of my knowledge, no locker except
locker in name of Late Smt. Pushpa Aggarwal, is in
10B, Roop Nagar, Delhi Probably we have
surrendered the locker and the key could have not
been found at that time.
Q. 30 Please confirm the name of the donor who has
given you a gift of Rs. 50,00,000/- which has been
stated to have been accepted as per statement given on
25.11.1999 morning.
Ans. It may be Rama Pati Singhania of JK Group who
is director in Companies belonging to JK Group.
Q.31 Was any gift deed executed? If yes, please
produce the same gift deed as no gift deed has been
found during the search of your residence.
ITA No. 169/2005+connected appeal Page 26 of 77
Ans. The gift deed was delivered to me by Mr. V.K.
Goyal after 2 to 3 months of payment of gift. I will
produce the gift deed in 2 or 3 days.
Q. 32 Please confirm whether any gift deed was singed
when the gift was made or it is still to be done.
Ans. I remember have received the gift deed from
Mr. V.K.Goyal after payment of Rs.50,00,000/- and
3% commission in cash.
Q. 33 Please furnish the latest address of Sh. Vipin
Bansal and also clarify whether he is employee in your
company / in any other firm owned and controlled by
you or your family members.
Ans. He is independently handling the affairs of M/s.
Universal Enterprises on my behalf. He is signatory
in the bank (India Bank Pahar Ganj and Sales Tax
Authority. His latest address is not known to me, His
previous phone No. was 4638999 latest telephone is
also not known to me.
Q. 34 Please confirm how much initial investment was
made in M/s. Universal Enterprises. Also state by
whom this investment was made.
Ans. The initial investment of Rs. 10,00,000/- was
made by me.
Q. 35 Please state the mode and source of above
investment
Ans. It was cash, generated through unaccounted
transactions of M/s. Delhi Acrylic Manufacturing Co.
Pvt. Ltd. or Mono Acrylic, invested in Universal
enterprises.
Q. 36 During the course of search it was informed by
the central room that you have purchased a property
in village Dhaturi. Please state the total consideration
paid and also where are the receipts of cash for the
same.
Ans. The land was purchased for Rs.48.77 lacs. The
land measured appox. 5 acres. Rs.38.77 lacs was paid
in cash and the documents was registered for a sale
consideration of Rs.10,00,000/- only. No receipt for
cash was taken as we has taken the possession by the
time the cash payment was made.
ITA No. 169/2005+connected appeal Page 27 of 77
Q. 37 Please explain the source of cash of Rs.38.77
lacs paid for the land at Dhaturi.
Ans. It was from the unaccounted trading transaction
of our group concerns.
Q. 38 During the course of search, papers, pertaining
the purchase of one half portion of property No. 2/34
Roop Nagar from your uncle have been found. On a
prima facie examination of the documents it appears
that the property is undervalued . Please comment.
Ans. Total consideration paid was Rs. 40 lacs out of
which approx. 28 lacs was paid in cash which came
from unaccounted trading transactions of our group
concerns, namely Delhi Acrylic Manufacturing Co.
Pvt. Ltd. and Mono Acrylic.
Q. 39 During the course of search the papers
pertaining to purchase of properties at various places
were found. Please given details of properties owned
, mentioning the sale consideration . source and mode
of payment ?
Ans. The details of properties owned, sale
consideration, source and mode of payment is as under
:
Property Total Sale Source & Mode
consideration paid of payment
in cash from
unaccounted money
Burari Rs.3,00,000 Unaccounted
transaction of
DAMCO and
Mono Acrylic
Bhondari Rs.4,00,000 -- do --
Sukher Rs.2,00,000 -- do --
Udaypur
Siraspur Rs.7,00,000 -- do --
Garhi Rs.5,00,000 -- do --
Khusro
Balance payment is mentioned on the documents.
ITA No. 169/2005+connected appeal Page 28 of 77
Q. 40 During the course of search proceedings it has
been informed by control room that certain papers
were found from the premise belonging to M/s. British
Scaffolding India Pvt. Ltd. showing certain agreement
with M/s. Acry Monomers Pvt. ltd. for the purchase of
plant and machinery by your concern initially at a
consideration of Rs. 1.20 crores which however, was
substantiated later on by another agreement showing
sale consideration at Rs.65 lacs. Please explain how
and when the balance consideration was -- passed to
M/s. British Scaffolding Pvt. Ltd.
Ans. The balance consideration of Rs. 55 lacs was
paid in cash in the office of Sh. H.R. Shive at 75-76
Manisha, Nehru Place, New Delhi . The cash was
received by the cashier of the company. The name of
cashier, I do not remember. The amount was paid
probably in more than two installments.
Q. 41 What factors compelled you to reduce the sale
consideration reflected in books of a/cs from Rs. 1.20
crores to Rs. 65 lacs ?
Ans. It was the demand of other party and they insisted
on receiving the cash.
Q.42. Please explain the sources of the amount paid in
cash.
Ans. It was out of the income generated out of the
books from Mono Acrylic and Delhi Acrylic
Manufacturing Co. Pvt. Ltd.
Q. 43 I am showing you paper found and seized during
the course of proceedings at Ground Floor 2/34 Roop
Nagar Delh marked as Annexure A- which confirms
the payments made by your concern to M/s. BSL in
cash amounting to Rs. 55 lacs and also a copy of
agreement wherein necessary changes have been made
in pencil whereby the consideration has been reduced
to Rs.65 lacs from Rs.120 lacs , please comment.
Ans. Yes, I have already disclosed to you the facts
regarding the cash payment even before you could
trace out the paper from my office.
Q. 44 During the course of survey operation u/s. 133A
of the I.T. Act 1961 at Sirsapur Godown of M/s. Mono.
ITA No. 169/2005+connected appeal Page 29 of 77
Acrylic Manufacturing Co. Pvt. Ltd. and M/s.
Universal Enterprises, inventory of stock of Acrylic
Sheets and poly carbonate sheet was prepared which is
placed on record. Please furnish the detail regarding
the purchase vouchers relating to those items and also
throw some light on sale price etc.
Ans. Average purchase price of Acrylic sheet is
approx. Rs. 40/- per kg. and poly-carbonate is Rs.80/-
per Kg. The average sale price is in cash of. acrylic,
around to Rs.45 to 50/- per Kg. and in case of poly
carbonate, it is Rs.85 to 95/- per. Kg.
Q. 45 Where are purchase and sale vouchers and books
of accounts of your concerns?
Ans. Books of accounts, purchase and sale vouchers
are lying here only i.e. 2/34 Roop Nagar, Delhi. Books
of account are maintained on computer also.
Q.46 What is the amount of cash balance as per the
cash books of your company?
Ans. I have no idea about the cash balance. The books
are probably maintained on computers, only after
checking the computer I will be able to give an idea of
cash balance.
Q. 47 Where do you keep the cash belonging to your
business concerns?
Ans. At the top floor of house where is a small room
allotted to Sh. Mishra the cashier wherein the cash
belonging to my business concerns is kept.
Q. 48 Do you want to say anything else ?
Ans. No, nothing. Signed
26.11.99
I have read over the above statement and understood
the same . I found that it has been correctly recorded.
The above statement has been given by me without any
pressure, fear or coercion.
Sd/- 26.11.99 Sd/- 26.11.99
(MS Aggarwal) Pawan K. Kumar IRS
Dy. Director of Income tax
(Inv) Unit-II,
ITA No. 169/2005+connected appeal Page 30 of 77
E/2, ARA Centre Jandewalan Extn.,
New Delhi 110055
W-1 Sd/-
W-1 Sd/-
22. Second statement on oath of the respondent/assessee under Section
131 of the Act was recorded on 29th December, 1999, in the presence of Mr.
Vinay Kumar Goel, Chartered Accountant. Relevant portion of this
statement reads:-
"Statement of Shri M.S. Aggarwal s/o Sh. M.R
Aggarwal R/o 2/34 Roop Nagar New Delhi recorded
on oath during the proceedings u/s. 131 of the I.T.
Act 1961 on 29.12.1999 at Room No. 267, ARA
Centre Jhandewalan Extn. New Delhi in the
presence of his AR, Sh. Vinay Kumar Goyal , CA.
I hereby under take to state the truth and only truth
In the name of God
Sd/-29.12.99(3.40pm) Sd/- 29.12.99
(MS Aggarwal) Pawan K. Kumar IRS
Oath Taken Dy.Director of Income tax
(Inv) Unit-II,
E/2, ARA Centre Jandewalan
Extn.,
New Delhi -110055
Oath Administrator
Q.1 Please identify yourself.
Ans. I am Mahender Singh Aggarwal S/o Sh. Mangat
Ram Aggarwal aged 54 years r/o 2/34 Roop Nagar,
New Delhi Oath
Administered
Q.2 Please explain whether the income tax return for
the last financial
year has been filed or not by you.
Ans. After consulting my tax consultant , I submit
that it has not been filed.
ITA No. 169/2005+connected appeal Page 31 of 77
Q.3 Please explain whether any wealth tax return has
ever been filed by you.
Ans. After consulting my tax consultant, I submit that
during last two -- three years, no wealth tax return has
been filed.
Q.4 Please furnish the list of all bank accounts
held in India and aboard by you, your family
member and business concerns in which you or your
family members have business interest, or are partners,
directors or sole proprietor.
Ans. The complete list I will submit latest by
05.01.2000.
Q.5 Please furnish the list of business concerns started
or controlled by you or your family members, the
particulars of which have not been disclosed to
department so far.
Ans. I will furnish the exhaustive list of all the entities
lastest by 05.01.2000 positively.
Q. 6 xxx
Ans. xxx
Q. 7 Please explain whether regular books of accounts
are maintained for the concerns which have not been
disclosed to department.
Ans. Apart from some diaries wherein record for only
for some period was maintained here and there and
which have been seized during the course of search by
the Department, there are bank accounts maintained
by those concerns wherein complete details are
available. Also some import files are with us wherein
details of shipments by those concerns are available
Q. 8 Where these records available in your
residence/office on the day of search?
Ans. No, these were maintained by Sh. Vipin Bansal
who looks after those concerns and were available with
him.
Q. 9 xxx
ITA No. 169/2005+connected appeal Page 32 of 77
Ans. xxx
Q.10 xxx
Ans. xxx
Q. 11 xxx
Ans. xxx
Q. 12 I am showing you Annexure A-38 to A-46
seized from your residence during the course of
search. Please explain in whose handwriting these
are written and also the details of entries contained
therein.
Ans. Annexure A-38 is written in my hand and relates
to my various business entity like HAMCO,
MAMCO, Trust etc. wherein on the left side of the
half page receipts are recorded and on the right side
of same, payments recorded. For example on page-6
on LHS Anupam 1.00 means rs. 1,00,000/- has been
received from Anupam by C-2 in the Indian Bank of
MAMCO. On the RHS the entries are the withdrawals
from bank. For example, documents referred entry
9.18 means the payments Rs. 9,18,000/- have been
made for import. Similarly on page-2 one entry
Capital Plastic 25,000/- is on LHS which means rs.
25,000/-has been recd from M/s. Capital Plastic.
On page -7 LHS there is on entry of Advista 150 it
means Rs. 1,50,000 have been received from Advistas
150 it means Rs.1,50,000 have been received from
Advistas.
Annexure A-39
This probably relates to the details of payments
made for purchases which have not been reflected in
my regular books of a/cs and some pages from pages
No. 15 onward pertain to M/s. Universal Enterprises
which has not filed any return of income so far. The
exact details shall be known once my employee who
has written it shall came and explain.
ITA No. 169/2005+connected appeal Page 33 of 77
Annexure A-40, A-42 and A-46
These are relating to the cash transactions which
are not reflected in our regular books of accounts.
However, some entry may be reflected in our regular
books of accounts which I cannot point out at this
moment.
The LHS (Half page) reflects the receipts and
the other half show payments made.
Annexure A-41
This diary contains details of stock purchase/and sold
item-wise as well as container wise.
Annexure A-43
This diary seems to contain partywise account of goods
sold and payments received.
Annexure A-44
It contains entries relating to some of our companies as
well as others. It appears to be a ledger account.
Annexure A-45
It relates to Universal Enterprises' details appears to be
of consignment/container's detail.
These diaries are in the hand writing of some of my
key employees namely Tarun Kumar, Mr. Mishra and
Sh.Bhushan who may be able to completely explain the
contents.
Q.13 Whether this kind of memoranda records
containing the detail of unaccounted transactions is
being maintained in computers as well?
Ans. As far as I remember these records are not
kept on computers.
Q.14 Pl. furnish the name and address of the banks
wherein the entities which have not been disclosed to
department, maintain their bank A/cs.
ITA No. 169/2005+connected appeal Page 34 of 77
Ans, Mainly the accounts are maintained in following
two bank
1 lnddian Bank, DBG Road Pahar Ganj, New Delhi.
2. Indian Overseas Bank, Model Town, Delhi
However, complete name of entities and bank A/cs will
be furnished on 05.01.2000.
A.15 Pl. explain the nature of business activities
carried out by different business concerns owned and
controlled by your and your family members.
Ans. All my entities broadly are engaged in import of
acrylic sheet, poly carbonate sheets, vinyls and sale
thereof, manufacturing of acrylic sheets and there
fabrication and exports of fabricated items.
Q. 16 I am showing you all the pages of Annexure A-
76, Pl. explain the nature of transaction with M/s.
British Scaffolding International Ltd.
Ans. This annexure contains all the papers relating to
transactions with M/s. BSIL regarding purchase of
plant. The original agreement was for Rs. 125 lacs out
of which Rs. 5 lacs was paid as services charges and
Rs. 55 lacs was paid in cash and balance Rs.65 lacs
was paid by cheques. The details of the item purchased
are given on page No. 68 and 69 annexed to the
agreement showing sale consideration at Rs. 120 lacs
and at page No. 56 and 57 annexed to the revised
agreement showing consideration at Rs. 65 lacs. Thus
the items purchased were the same and only balance
consideration was passed on to the seller in cash out of
undeclared sources of income.
Q.17 These plant and machinery are still used by you
or has again been re-sold.
Ans. The Plant and machinery purchased from BSIL
has been installed and being used by M/s. Acry
Monomers (I) Pvt. Ltd.
ITA No. 169/2005+connected appeal Page 35 of 77
Q. 18 Please confirm to whom the cash amount was
delivered at the premises of BSIL
Ans. It was given to the cashier, whose name I do
not remember at the premises of BSIL.
Q. 19 Who asked you to deliver the cash to the cashier
?
Ans. Once I had gone myself to deliver the cash and I
was told by Sh. Neerav Hans S/o. Sh. H.R. Shiv to
deliver the cash to their cashier sitting at the same
office premise at Nehru Place, New Delhi.
Q. 20 How many time the cash was delivered to BSIL
for the purchase of machinery?
Ans. Probably three times.
Q. 21 Who gave the cash from your side on other
occasion.
Ans. I do not remember the name, perhaps Tarun
Kr. My employee would have given the cash. I will
tell the name after consulting my staff.
Q. 22 Will you and your staff be able to identify the
man to whom cash was delivered at BSIL.
Ans. It might be possible that my employee who
delivered the cash may recognize the person to whom
the cash was delivered.
Q.23 Who signed the receipt of cash delivered by you
and your staff.
Ans. All the case receipt and agreement was signed by
Mr. Ashok Mandal on behalf of M/s BSIL
Q. 24 xxx
Ans. xxx
Q.25 Please explain why the gift deed has not been
furnished so far.
Ans. If available, I will furnish it in next hearing.
ITA No. 169/2005+connected appeal Page 36 of 77
Q. 26 Please furnish the details of bank account where
the gift-cheques have been deposited.
Ans. I will furnish the details on 05.01.2000.
The statement is temporarily concluded at 7:05 p.m.
at the request of Sh. M.S. Aggarwal as he is feeling
tired, to be continued on 05.01.2000
Sd/- (MS Aggarwal)
29.12.99
The above statement has been read and I find it has
been correctly recorded.
Sd/- (Vinay Goel)
29.12.99
Sd/- 29.12.99
(MS Aggarwal)
Sd/- 29.12.99
Pawan K.Kumar IRS
Dy.Director of Income tax
(Inv) Unit-II,
E/2, ARA Centre Jandewalan Extn., New Delhi
Second statement of the respondent/assessee recorded on 29th December,
1999 was more than a month after the first statement at the time of the
search on 25th November, 1999. By then, respondent/assessee had been
discharged and had got over the initial shock and trepidation associated with
the search and seizure operation. In this statement recorded in the presence
of his Chartered Accountant on 29th December, 1999, the
respondent/assessee did not retract and contradict his earlier admission on
arranged and bogus gifts. The respondent/assessee had not complained or
protested that his earlier admission was factually incorrect and was recorded
by force and under coercion. The respondent/assessee took time to furnish
the gift deeds and details of bank accounts.
ITA No. 169/2005+connected appeal Page 37 of 77
23. The respondent/assessee`s third statement on oath, under Section 131
of the Act, recorded on 6th January, 2000 on the aspect of gifts is as relevant
and significant as the statement on 25th November, 1999. This statement
reads:-
"The statement is in continuation of the statement
temporarily concluded on 29.12.1999
Q. 27 Please furnish the details of all the bank accounts
names of firms/companies including the particulars of
bank a/cs, firms, companies which have not been
disclosed to the department & also the addresses of
some of the employees and the details of gifts taken by
you.
Ans. I am filing the above information in three list.
Q. 28 What about the details of gifts taken by you
which were informed during the course of search?
Ans. It was taken from Sh. Rama Pati Singhania r/o
Kamla Tower, Kanpur (UP). It was taken in the form
of cheque for about Rs.50 lacs. I have no evidence of
the gift & I hereby voluntarily offer the same for
taxation.
Q. 29 When were the cheques deposited & in
which account & how many cheques were received.
Ans. It was received in the current financial year, i.e.
about six to eight months back. The amount was
received in two/three cheques which was duly
deposited in my bank account around the same time. I
do not remember the particulars of bank account where
the same were deposited. It was received probably in
my name. I will furnish the exact details in three-four
days.
Ans. It was received in the current financial year, i.e.,
about six to eight months back. The amount was
received in two/three cheques which was duly
deposited in my bank account around the same time. I
do not remember the particulars of the particulars of
the bank account where they were deposited. It was
received probably in my name. I will furnish the exact
details in four-five days.
ITA No. 169/2005+connected appeal Page 38 of 77
Q. 30 Can you explain the reasons for receiving the
gifts?
Ans. I do not want to go in details since I am
willing to pay taxes on the same.
Q. 31 Please explain whether you have received similar
gifts from the same person or other persons in earlier
years in your name or in the name of family members
& vice-versa, you have also given the gifts to others or
the same person .
Ans. As far as I remember there was no gift received
by me or given by me to any person or the same person
& also by my family members.
Q.32 Please explain the occasion on which the gifts
was taken.
Ans. There was no special occasion.
Q. 33 Please explain whether any Gift Deed was
executed & if yes, why the same was not found during
the course of search and also it has not been furnished
till date despite a specific requisition for the same in
the notice u/s.131 of the I.T. Act 1961
Ans. To the best of my knowledge it was executed
but I do not remember it was registered or not & at
present I am not able to trace the same.
Q.34 Please furnish the details of mode & manner in
which gift transactions was completed.
Ans. It may be considered out of the income generated
from my undisclosed firms.
Q. 35 How the undisclosed funds were used in the gift
transaction?
Ans. This may have been done in cash/ kind.
Q.36 Please furnish the copy of bank accounts with
narration in respect of the entities not disclosed to the
department.
Ans. All the entities not disclosed to the department as
per the list furnished were started in 1997 & 1998 and
even in 1999. Some of them have been closed in 1998
and in 1999. At present M/s. Kumar Traders & M/s.
Universal Enterprises are running, I shall be able to
furnish the copies of bank a/cs within a week's time.
ITA No. 169/2005+connected appeal Page 39 of 77
It is noteworthy that even on 6th January, 2000, no attempt was made to
retract the admission on bogus gifts or explain the basis and assert that the
gifts were genuine. The third statement affirms and corroborates the first
statement that the gift of Rs.50,00,000/- was procured by paying equal
amount in cash. This statement, which is critical and crucial, was never
retracted as extracted by extending threats or under compulsion. It is also
apparent that the respondent/assessee did not produce the gift deed etc. on
6th January,2000 and had consciously preferred to accept the truth in the
spirit of atonement.
24. The first attempt and retraction came in the letter dated 13th March,
2002 filed by the assessee during the course of the block assessment
proceedings. Till then no specific communication was written to retract and
withdraw the admission and confession that the gifts were bogus and
procured by paying cash.
25. The Tribunal, in our opinion, has incorrectly observed and held that
initial and first question and answers on gift, with reference to the statement
recorded on 25th November, 1999, were at the preliminary stage and before
the search, and question No. 20 onwards form part of the statement recorded
during the search. The said finding of the Tribunal is fallacious and
unacceptable. It ignores the first portion or the preamble before the
statement was recorded, which reads as under:
Statement of Shri Mahender Singh Aggarwal s/o Sh.
Mangat Ram Aggarwal aged 54 years R/0 2/34 Roop
Nagar Delhi recorded on oath during the search and
seizure operation u/s 132 of the Income-tax Act, 1961
on 25.11.99 at 2.34 Roop Nagar, Delhi.
ITA No. 169/2005+connected appeal Page 40 of 77
26. Clearly questions no. 4 to 11 quoted above and recorded on 25th
November, 1999 were made during the course of search and seizure
operation. These were recorded after the search warrant was enforced and
executed. After recording answers to the first 19 questions, there was a time
gap. Therefore signatures were affixed. The recording of the statement
subsequently continued from question No. 20 onwards. In this situation,
before question no. 20 the words "statement taken during the course of
search" were again recorded. We fail to understand how the tribunal came
to the conclusion that questions after question no. 20 were recorded during
the course of search, while the first 19 questions were preliminary in nature
and were recorded before the search had commenced. This was not pleaded
before the Assessing Officer or Commissioner of Income Tax (Appeals).
The search had commenced the moment various officers, including the
Deputy Director of Income Tax (Investigation Unit 2) had reached the
residence of the respondent/assessee and had shown and executed the search
warrant.
27. The Tribunal in the impugned order correctly records that the
admissions were compelling. However, thereafter the Tribunal observed that
the statements should be ignored and would not be accepted, as the assessee
had been able to rebut the admissions as the gifts were made by Mr. Rama
Pati Singhania a leading industrialist from a well known family of Kanpur
who had sold a property worth Rs. 2,75,00,000/- in Bombay. The sale of
property and gifts were declared by Mr. Rama Pati Singhania in his Income
Tax returns, which were filed on record. Gift deeds dated 20 th June, 1999 as
well as 30th May, 1999 executed by the donor as well as the donee were
produced before their assessing officer. Affidavits dated 13th May, 1999 and
20th June, 1999, sworn by Mr. Rama Pati Singhania much before the search,
ITA No. 169/2005+connected appeal Page 41 of 77
were also placed on record during the block assessment proceedings. The
transactions were therefore not hidden and concealed but were duly
disclosed in the books of account of the donor and donee.
28. On the aspect of genuineness of the gift, we would observe that the
Tribunal has missed the core issue and question that had arisen for
consideration and required an answer. There was no dispute and challenge
that the purported gifts were made through bank transactions and donor and
his financial status was known. The issue was whether the gifts were
arranged and bogus, in the sense that the respondent/assessee had paid cash
to procure the gifts from an unrelated person with whom he had no personal
relations, love and affection as was admitted by the respondent/assessee in
his two statements, before taking a u-turn after two years in 2002. This core
issue has been overlooked and ignored by the Tribunal to hold that the gift
was genuine.
29. Gift as defined in Section 122 of the Transfer of Property Act means
voluntary transfer of existing movable or immovable property made without
consideration by the person called donor to another called the donee. Three
important and essential characteristics of gifts are that it should be
voluntary, it should be without consideration and there should be
acceptance by the donee. Expression without consideration was e xplained
and elucidated in Kumari Sonia Bhatia versus State of U.P. and Others,
(1981) 2 SCC 585, which exposition need not be referred to in detail in view
of the limited legal issue that arises in the present case, albeit it is beyond
cavil that the gift must be voluntary and without consideration. Asokan
versus Lakshmikutty and Others, (2007) 13 SCC 210, reiterates that
absence of consideration is an essential element of gift and that concept of
payment of consideration in whatsoever form is unknown. Therefore, when
ITA No. 169/2005+connected appeal Page 42 of 77
there are cross-transactions in form of payment of cash for issue of cheque,
in the absence of explanation, there would be consideration and the
transaction/transfer would not be a genuine gift but a sham and camouflage.
Genuine gifts received during the current year were un-taxable, but sham
and bogus gifts would fall foul and attract correction and taxation under
Section 68 of the Act. In State of Karnataka versus J. Jayalalitha and
Others, (2017) 6 SCC 263, Ghose, J. in paragraph 213 of the said citation
had referred to Section 68 of the Act and relied on Sumati Dayal versus
Commissioner of Income Tax, Bangalore, 1995 Supp (2) SCC 453, to
observe that payment by way of cheques may not per se be of consequence
in all cases and circumstances. When genuineness of the transaction was
examined, the assessee must justify the cash credit by explaining the nature
and reason of the transaction, otherwise Section 68 of the Act could be
invoked even when there was evidence that the money was received by
cheque or though bank transaction. This would not ipso facto determine and
decide whether the transaction was genuine and truly a gift. It was
observed:-
215. In Yash Pal Goel v. CIT (Appeals) [Yash Pal
Goel v. CIT (Appeals), 2009 SCC OnLine P&H 664 :
(2009) 310 ITR 75] , Kusum Lata
Thakral v. CIT [Kusum Lata Thakral v. CIT, 2009 SCC
OnLine P&H 7276 : (2010) 327 ITR 424]
, CIT v. Sandeep Goyal [CIT v. Sandeep Goyal, 2014
SCC OnLine P&H 24763 : (2014) 369 ITR 471 (P&H)]
and ITO v. Mukesh Bhanubhai Shah [ITO v. Mukesh
Bhanubhai Shah, 2009 SCC OnLine ITAT 1489 : (2009)
318 ITR (AT) 394 (Bom)] , the common issue was with
regard to applicability of Section 68 of the Income Tax
Act, 1961 vis-à-vis receipts which were claimed by the
assessees to be by way of gifts and thus exempted from
income tax. In all these cases, the assessees were asked
to provide explanation to bring the receipts within the
ITA No. 169/2005+connected appeal Page 43 of 77
purview of gifts exempted from income tax and the AO
on an in-depth scrutiny thereof had concluded that the
transactions were only smoke screen/subterfuge to avoid
income tax. The decision in Sumati Dayal [Sumati
Dayal v. CIT, 1995 Supp (2) SCC 453], with reference
to Section 68 of the Income Tax Act was relied upon.
Further, the significant aspects of creditworthiness of
donors and genuineness of the transactions were
highlighted. The relationship between the donors and the
assessee was also examined so as to furnish an
acceptable reason or justification for such gift out of
natural love and affection.
216. It was emphasised that to examine the
genuineness of a gift, the test of human probability was
very appropriate. It was reiterated that a gift cannot be
accepted as such to be genuine merely because the
amount has come by way of cheque or draft through
banking channels unless the identity of the donor, his
creditworthiness, relationship with the donee and the
occasion was proved. Unless the recipient proved the
genuineness of the transaction, the same could be very
well treated as an accommodation entry of the assessee's
own money, which was not disclosed for the purpose of
taxation.
217. In all, however, the process undertaken by the
Income Tax Authorities under Section 68 of the Act is
only to determine as to whether the receipt is an income
from undisclosed sources or not and is unrelated to the
lawfulness of the sources or of the receipt. Thus, even if
a receipt claimed as a gift is after the scrutiny of the
Income Tax Authorities construed to be income from
undisclosed sources and is subjected to income tax, it
would not for the purposes of a charge under Section
13(1)(e) of the Act be sufficient to hold that it was from
a lawful source in the absence of any independent and
satisfactory evidence to that effect.
ITA No. 169/2005+connected appeal Page 44 of 77
30. It is in this context that the statements on oath made by the
respondent- assessee on two occasions, i.e. 25th November, 1999 and 6th
January, 2000 become relevant and significant.
31. Section 114 of the Evidence Act states that Courts may presume
existence of certain facts having regard to common course of natural events,
human conduct and public and private business in relation to facts of a
particular case. Illustration clause (e) states that judicial and official acts
could be presumed were regularly performed. Thus, there would be a
presumption as to the admission recorded, though the presumption is not
absolute. Similarly, Section 57 of the Evidence Act states that Courts could
take judicial notice of facts enumerated therein, albeit the list is not
exhaustive. Judicial pronouncements hold that doctrine of judicial notice is
wide and would include matters of common and general knowledge
including facts that had acquired universal notoriety and have regular
occurrence. It is in this context that observations made in the Kelkar Report
regarding use of threats and compulsion to extract admissions, etc. and
adverse observations in some judicial pronouncements would be relevant.
Judicial notice of pernicious practice of procuring gifts could also be taken.
However, it would be incorrect to apply presumption under Section 114 of
the Evidence Act or the facts that could be judicially noticed, as affirmative
or negative universal principles cast in stone. The factual background, i.e.
facts and circumstances, matter and would be compelling.
32. Confessions are important for when voluntarily made there is a
presumption that no person would make a statement against his interest
unless it is true. Therefore, courts have to be cautious and careful that the
confession recorded was voluntarily and not obtained under coercion and by
force and wrongful inducement. Force and coercion are not synonymous
ITA No. 169/2005+connected appeal Page 45 of 77
and cannot be mixed and equated with mere anxiety and stress due to search
and seizure operations, or inducement propelled by remorse and atonement
to make an admission and confess a wrong. Motive of the person making
the admission to gain indulgence, advantage or avoid evil of a temporal
nature, cannot be treated as equivalent to inducement, coercion or fraud.
Whether a confession is voluntary or induced by force, threat, coercion and
wrongful inducement would primarily be one of fact, albeit any judicial
verdict and decision on the issue must take all relevant facts and
circumstances of the case into consideration and should not be guided by
mere pre-ordained impressions. Factors like time of retraction, nature and
manner of retraction etc. are relevant. Mere retraction does not make or
proves that the admission was obtained by inducement, threat etc. Further,
prudence requires that the court would examine the truthfulness and
correctness of the admission when admissions are accepted and relied.
Corroboration by attending circumstances may be justified.[See K.T.M.S.
Mohd. and Another versus Union of India, (1992) 3 SCC 178, Telstar
Travels Private Limited and Others Versus Enforcement Directorate,
(2013) 9 SCC 549, Adambhai Sulemanbhai Ajmeri and Others versus
State of Gujarat, (2014) 7 SCC 716 and Seeni Nainar Mohammed versus
State, (2017) 13 SCC 685)].
33. In the present case, the respondent-assessee had stated that he had
paid cash to convert his unaccounted money to procure the gift. This
admission and confession was made in two statements after a time gap of
nearly forty days. It would be difficult, if not impossible, to get direct
evidence to ascertain and vouch for the truth or falsity of this inculpatory
admission. The answer would largely depend on inference founded on
surrounding circumstances, antecedent and subsequent. In the facts of the
ITA No. 169/2005+connected appeal Page 46 of 77
present case, the surrounding circumstances compellingly affirm that the gift
was procured and not a genuine one. These circumstances are as under:-
(i) Gift of Rs.50,00,000/- was a substantial amount of money in
1999.
(ii) There is no evidence or material or even an effective attempt to
show that the respondent-assessee and Mr. Rama Pati
Singhania were extremely close friends. Blood relationship is
not claimed.
(iii) The respondent-assessee before the Commissioner of Income
Tax (Appeals) had stated that their forefathers may have helped
forefathers of Mr. Rama Pati Singhania, a vague statement
which in fact admits and accepts that the respondent-assessee
did not personally know Mr. Rama Pati Singhania.
(iv) The respondent-assessee`s retraction was nearly two years after
he had admitted having procured or arranged the gifts.
(v) Statement dated 6th January, 2000 admitting that the gift was
bogus and not genuine was made by the respondent-assessee in
the presence of the Chartered Accountant.
(vi) The respondent-assessee does not claim that the statement
recorded on 6th January, 2000 was extracted and given under
force, threat or coercion.
34. A gift is given out of natural love and affection to a person who is
close to the donor or for the purposes of charity. Plea of charity has not
been raised in this case. There is no evidence or even an indication as to
how the respondent-assessee knew the donor, a well known businessman,
ITA No. 169/2005+connected appeal Page 47 of 77
who gave the gift to the respondent-assessee. In view of the aforesaid
discussion, we have no hesitation in holding that the gift in question of
Rs.50,00,000/- purportedly received by the respondent/assessee from Mr.
Rama Pati Singhania was a procured one and the admissions/confession
made as recorded in the statements dated 25th November, 1999 and 6th
January, 2000 are trustworthy, true and correct. Finding of the Tribunal on
accepting the gift as genuine is contrary to law being perverse and contrary
to facts and material on record.
Whether addition of Rs.50 lacs would have been made as undisclosed
income in the block assessment order or should have been made in the
regular assessment order
35. Chapter XIV-B relating to procedure for assessment in search cases
was introduced with effect from 1st July, 1995 by Finance Act, 1995. The
provisions of this Chapter have undergone several amendments, including
some with retrospective effect from 1st July, 1995 by Finance Act, 2002.
This has resulted in confusion and divergent interpretation of provisions of
the said Chapter. Initially undisclosed income relating to the block period
was taxed at 60% as prescribed under Section 113, with immunity from
specified interest and penalty contemplated under Section 158BF on the
undisclosed income. This had no bearing on tax, interest and penalty payable
on normal/regular assessment, even if pending and when the assessment was
subsequent to the search. Legal position underwent a change with enactment
of Section 158BFA by way of the Income Tax (Amendment) Act, 1997 with
effect from 1st January, 1997, in respect of searches under Section 132 or
requisition under Section 132A on or after 1st January,1997. New provision
of Section 158BFA had authorised levy of interest and penalty in certain
cases. Conflicting and different stands taken pre and post enactment of
ITA No. 169/2005+connected appeal Page 48 of 77
section 158BFA by the Revenue have also contributed to the said confusion,
which have resulted in somewhat conflicting judicial pronouncements.
36. The relevant provisions of Chapter XIV-B, namely, Section 158B
clause(b), 158BA, 158BB and 158BC, including amendments made vide
Finance Act, 2002 with retrospective effect from 1st July, 1995, read as
under:-
Section 158B. In this Chapter, unless the context
otherwise requires,-
xxx
(b) undisclosed income includes any money, bullion,
jewellery or other valuable article or thing or any
income based on any entry in the books of account or
other documents or transactions, where such money,
bullion, jewellery, valuable article, thing, entry in the
books of account or other document or transaction
represents wholly or partly income or property which
has not been or would not have been disclosed for the
purposes of this Act, or any expense, deduction or
allowance claimed under this Act which is found to be
false.
(underlined portion was inserted by
Finance Act, 2002 w.r.e.f. 1st July,
1995)
xxx
158-BA. Assessment of undisclosed income as a result
of search.--(1) Notwithstanding anything contained in
any other provisions of this Act, where after the 30th
day of June, 1995 a search is initiated under Section 132
or books of account, other documents or any assets are
requisitioned under Section 132-A in the case of any
person, then, the Assessing Officer shall proceed to
assess the undisclosed income in accordance with the
provisions of this Chapter.
ITA No. 169/2005+connected appeal Page 49 of 77
(2) The total undisclosed income relating to the block
period shall be charged to tax, at the rate specified in
Section 113, as income of the block period irrespective
of the previous year or years 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.
Explanation.--For the removal of doubts, it is hereby
declared that--
(a) the assessment made under this Chapter shall be in
addition to the regular assessment in respect of each
previous year included in the block period;
(b) the total undisclosed income relating to the block
period shall not include the income assessed in any
regular assessment as income of such block period;
(c) the income assessed in this Chapter shall not be
included in the regular assessment of every previous
year included in the block period.
(3) Where the assessee proves to the satisfaction of the
Assessing officer that any part of income referred to in
sub-section (1) relates to an assessment year for which
the previous year has not ended or the date of filing the
return of income under sub-section (1) of Section 139
for any previous year has not expired, and such income
or the transactions relating to such income are recorded
on or before the date of the search or requisition in the
books of account or other documents maintained in the
normal course relating to such previous years, the said
income shall not be included in the block period.
(underlined portion was inserted by
Finance Act (No.2), 1998 w.r.e.f. 1st
July, 1995)
xxx
158-BB. Computation of undisclosed income of the
block period.--(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,
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in 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 aggregate of the losses
of such previous years, determined,--
(a) where assessments under Section 143 or Section 144
or Section 147 have been concluded prior to the date of
commencement of the search or the date of requisition,
on the basis of such assessments;
(b) where returns of income have been filed under
Section 139 or in response to a notice issued under
subsection (1) of Section 142 or Section 148 but
assessments have not been made till the date of search or
requisition, on the basis of the income disclosed in such
returns;
(c) where the due date for filing a return of income has
expired, but no return of income has been filed,--
(A) on the basis of entries as recorded in the books of
account and other documents maintained in the normal
course on or before the date of the search or requisition
where such entries result in computation of loss for any
previous year falling in the block period; or
(B) on the basis of entries as recorded in the books of
account and other documents maintained in the normal
course on or before the date of the search or requisition
where such income does not exceed the maximum
amount not chargeable to tax for any previous year
falling in the block period;
(ca) where the due date for filing a return of income has
expired, but no return of income has been filed, as nil, in
cases not falling under clause (c);
(d) where the previous year has not ended or the date of
filing the return of income under sub-section (1) of
Section 139 has not expired, on the basis of entries
ITA No. 169/2005+connected appeal Page 51 of 77
relating to such income or transactions as recorded in
the books of account and other documents maintained in
the normal course on or before the date of the search or
requisition relating to such previous years;
(e) where any order of settlement has been made under
sub-section (4) of Section 245-D, on the basis of such
order;
(f) where an assessment of undisclosed income had been
made earlier under clause (c) of Section 158-BC, on the
basis of such assessment.
Explanation.--For the purposes of determination of
undisclosed income,--
(a) the total income or loss of each previous year shall,
for the purpose of aggregation, be taken as the total
income or loss computed in accordance with the
provisions of this Act without giving effect to set off of
brought forward losses under Chapter VI or unabsorbed
depreciation under sub-section (2) of Section 32:
Provided that in computing deductions under Chapter
VI-A for the purposes of the said aggregation, effect
shall be given to set off of brought forward losses under
Chapter VI or unabsorbed depreciation under sub-
section (2) of Section 32;
(b) of a firm, returned income and total income assessed
for each of the previous years falling within the block
period shall be income determined before allowing
deduction of salary, interest, commission, bonus or
remuneration by whatever name called:
Provided that undisclosed income of the firm so
determined shall not be chargeable to tax in the hands of
the partners, whether on allocation or on account of
enhancement;
(c) assessment under Section 143 includes determination
of income under sub-section (1) or subsection (1-B) of
Section 143.
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(2) In computing the undisclosed income of the block
period, the provisions of Sections 68, 69, 69-A, 69-B
and 69-C shall, so far as may be, apply and references to
financial year in those sections shall be construed as
references to the relevant previous year falling in the
block period including the previous year ending with the
date of search or of the requisition.
(3) The burden of proving to the satisfaction of the
Assessing Officer that any undisclosed income had
already been disclosed in any return of income filed by
the assessee before the commencement of search or of
the requisition, as the case may be, shall be on the
assessee.
(4) For the purpose of assessment under this Chapter,
losses brought forward from the previous year under
Chapter VI or unabsorbed depreciation under subsection
(2) of Section 32 shall not be set off against the
undisclosed income determined in the block assessment
under this Chapter, but may be carried forward for being
set off in the regular assessments.
(underlined portion was inserted by Finance
Act, 2002 w.r.e.f. 1st July, 1995. Prior to its
substitution, clause (c) read as under,
(c) where the due date for filing a return of
income has expired but no return of income has
been filed, as nil)
xxx
158-BC. Procedure for block assessment.--Where
any search has been conducted under Section 132 or
books of account, other documents or assets are
requisitioned under Section 132-A, 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;
ITA No. 169/2005+connected appeal Page 53 of 77
(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 (1) 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 158-BB 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.
37. In Commissioner of Income Tax, Delhi-II versus Ravi Kant Jain,
[2001] 250 ITR 141 (Delhi), after referring to sub-section (1) to Section
158BA, which starts with a non obstante clause, it was observed that block
assessment under Chapter XIV-B was in addition to the regular assessment
in respect of each previous year. Income assessed in block assessment does
not form part of regular assessment. Further, procedure under Chapter XIV-
ITA No. 169/2005+connected appeal Page 54 of 77
B was intended to provide for a mode of taxing undisclosed income detected
as a result of search and was not a substitute for a regular assessment.
Assessment for the block period could only be done on the basis of the
evidence found as a result of search or requisitioning the books of account or
documents or such other information available with the assessing officer.
Legal position on scope and ambit of undisclosed income has been
elucidated and explained by the Supreme Court in Assistant Commissioner
of Income Tax, Chennai versus A.R. Enterprises, (2013) 3 SCC 196, which
specifically made reference to the expression which has not been or would
not have been disclosed` for the purpose of the said Act. Referring to the
latter portion of Section 158B(b), it was observed as under:-
"17. The genesis of the issue before us lies within the
folds of this section. Sections 158-BD and 158-BC,
along with the rest of Chapter XIV-B, find application
only in the event of discovery of undisclosed income
of an assessee. Undisclosed income is defined by
Section 158-B as that income which has not been or
would not have been disclosed for the purposes of this
Act. The legislature has chosen to define undisclosed
income in terms of income not disclosed, without
providing any definition of disclosure of income in
the first place. We are of the view that the only way of
disclosing income, on the part of an assessee, is
through filing of a return, as stipulated in the Act, and
therefore an undisclosed income signifies income not
stated in the return filed. Keeping that in mind, it
seems that the legislature has clearly carved out two
scenarios for income to be deemed as undisclosed: (i)
where the income has clearly not been disclosed, and
(ii) where the income would not have been disclosed. If
a situation is covered by any one of the two, income
would be undisclosed in the eyes of the Act and hence
subject to the machinery provisions of Chapter XIV-B.
The second category viz. where income would not have
been disclosed, contemplates the likelihood of
ITA No. 169/2005+connected appeal Page 55 of 77
disclosure; it is a presumption of the intention of the
assessee since in concluding that an assessee would or
would not have disclosed income, one is ipso facto
making a statement with respect to whether or not the
assessee possessed the intention to do the same. To
gauge this, however, reliance must be placed on the
surrounding facts and circumstances of the case.
xxxx
25. Hence, the computation of undisclosed income
for the purposes of Chapter XIV-B has to be construed
in terms of the total income received, accrued,
arisen; or which is deemed to have been received,
accrued or arisen in the previous year, and is computed
according to the provisions of the Act. According to
Section 139(1) of the Act, every person who is
assessable under the Act, must file a return declaring
his or her total income during the previous year on or
before the due date, for assessment under Section 143
of the Act. Hence, the disclosure of income is the
disclosure of the total income in a valid return under
Section 139, subject to assessment and chargeable to
tax under the provisions of the Act. It is important to
bear in mind that total income is distinct from
the estimated income, upon the basis of which,
advance tax is paid by an assessee. Advance tax is
based on estimated income, and hence, it cannot result
in the disclosure of the total income assessable and
chargeable to tax.
xxxx
38. Thus, for the purposes of computation of
undisclosed income under Chapter XIV-B, an assessee
can rebut the assessing officer's finding of undisclosed
income by showing that such income was disclosed in
the return of income filed by him before the
commencement of search or the requisition. In other
words, when Section 158-BB(3) is read with Section
158-B(b), which defines undisclosed income, we reach
the conclusion that for income to be considered as
ITA No. 169/2005+connected appeal Page 56 of 77
disclosed income, the same should have been disclosed
in the return filed by the assessee before the search or
requisition. In our opinion, on failure to file return of
income by the due date under Section 139 of the Act,
payment of advance tax per se cannot indicate the
intention of an assessee to disclose his income."
Undisclosed income in the second category, i.e. where the income
would not have been disclosed, contemplates likelihood of non-disclosure.
It refers to the intention of the assessee. Relevance of the aforesaid
observations in the context of the present case is that the respondent/assessee
had certainly received Rs.50,00,000/- by way of cheques from Mr. Rama
Pati Singhania, allegedly as a gift, with an intent to claim exemption. It is
not the case of the respondent / assessee that he wanted to ever disclose Rs.
50,00,000/- as taxable income and indeed in the block assessment return he
had not disclosed this amount as taxable income. It is not the case of the
respondent/assessee that this amount was to be disclosed or was disclosed as
taxable income in the regular return under Section 139 of the Act.
38. Interpreting the aforesaid provisions of Chapter XIV-B in
Commissioner of Income Tax versus Shailendra Mahto, [2015] 372 ITR
257 (Del), it was held as under:-
"8. Section 158B(b) is a definition provision for the
purpose of the said Chapter, which defines the term
undisclosed income. It is an inclusive definition and
is subject to the context otherwise requiring a different
interpretation. Undisclosed income for the purpose of
the Chapter could include any money, bullion,
jewellery or other article, valuable article or thing or
even income based on entry in the books of account and
other documents of transactions, which had not been or
would not have been disclosed for the purposes of this
Act. By retrospective amendment inserted by the
ITA No. 169/2005+connected appeal Page 57 of 77
Finance Act, 2002, with effect from July 1, 1995, any
expense, deduction or disallowance claimed under the
Act, which was found to be false was also treated as
undisclosed income. An inclusive definition is to be
read broadly and in a wide manner and should not be
given a restrictive meaning. The expression
undisclosed income with effect from July 1, 1995,
therefore, would mean and include any false
expenditure, deduction or allowance claimed under the
Act but was found to be false, or any money, bullion,
jewellery, valuable article or thing, that had not been or
would not have been disclosed and also included any
income based on entry in the books of account or other
documents, which had not been disclosed or would not
have been disclosed for the purposes of this Act. The
crucial and singularly pre-eminent expression used in
the said clause is has not been or would not have been
disclosed for the purposes of this Act. We shall be
subsequently referring to, in detail, the judgment of the
Supreme Court in Asst. CIT v. A.R. Enterprises, [2013]
350 ITR 489 (SC); (2013) 3 SCC 196, but suffice at
this stage, it is to notice and reproduce the following
paragraph from A.R. Enterprises (supra) (page 500 of
350 ITR):
The genesis of the issue before us lies within
the folds of this section. Sections 158BD and
158BC, along with the rest of Chapter XIV-B,
find application only in the event of discovery of
undisclosed income` of an assessee.
Undisclosed income` is defined by section
158B as that income which has not been or
would not have been disclosed for the purposes
of this Act`. The Legislature has chosen to
define undisclosed income` in terms of income
not disclosed, without providing any definition
of disclosure` of income in the first place. We
are of the view that the only way of disclosing
income, on the part of an assessee, is through
filing of a return, as stipulated in the Act, and
therefore an undisclosed income` signifies
ITA No. 169/2005+connected appeal Page 58 of 77
income not stated in the return filed. Keeping
that in mind, it seems that the Legislature has
clearly carved out two scenarios for income to
be deemed as undisclosed : (i) where the income
has clearly not been disclosed, and (ii) where the
income would not have been disclosed. If a
situation is covered by any one of the two,
income would be undisclosed in the eyes of the
Act and, hence, subject to the machinery
provisions of Chapter XIV-B. The second
category, viz., where income would not have
been disclosed, contemplates the likelihood of
disclosure; it is a presumption of the intention of
the assessee since in concluding that an assessee
would or would not have disclosed income, one
is ipso facto making a statement with respect to
whether or not the assessee possessed the
intention to do the same. To gauge this,
however, reliance must be placed on the
surrounding facts and circumstances of the
case.
9. The aforementioned paragraph, interprets section
158B(b) of the Act and lays core and primary
emphasis/stress on the phrase, has not been and would
not have been disclosed. This part of the definition
effectuates and underlines the object of the block
assessment proceedings is to bring to tax what was not
taxed or would not have been taxed including wrong
deduction or disallowance claimed and allowed earlier.
The retrospective amendment is an indication that even
the entries recorded in the books of account or other
documents of transaction could become the subject
matter of undisclosed income if found to be false and,
accordingly, deduction or disallowance should not have
been allowed or claimed.
10. Section 158BA(1) of the Act begins as a non
obstante provision giving primacy to the procedure
prescribed under Chapter XIV-B of the Act to the
exclusion of other provisions of the Act where search
ITA No. 169/2005+connected appeal Page 59 of 77
was conducted after June 30, 1995, up to May 31, 2003
(see section 158BI of the Act), or books of account or
other documents of the assessee had been requisitioned
in the aforesaid period. Sub-section (2) stipulates that
the rate of tax as specified in section 113 shall apply to
income calculated for the block period irrespective of
the previous years to which the income relates and
irrespective of the fact whether regular assessment for
any one or more assessment years was pending or
not. Explanation which was inserted by the Finance
(No. 2) Act, 1998, with retrospective effect from July 1,
1995, is a cause of some debate, as do the subsequent
amendments by the Finance Act, 2002, again with
retrospective effect from July 1, 1995. The amendments
incorporated by the Finance Act, 2002, reflect the
position that there was a greater clarity and
understanding, regarding block assessment proceedings
when the Finance Act, 2002, was enacted. It reflects the
march of law, as there was greater and better
appreciation and the amendments negate the ill effects
and problems noticed in practice (This aspect has been
also examined below with reference to the decision
in N.R. Paper and Board Ltd. v. Deputy CIT, [1998]
234 ITR 733 (Guj). Coming back to
the Explanation inserted by the Finance (No. 2) Act,
1998, with retrospective effect from July 1, 1995, it
declares for removal of doubt that assessment under
Chapter XIV-B shall be in addition to regular
assessment for each of the previous year in the block
period; total undisclosed income in the block period
would not include income included in regular
assessment; and income assessed under Chapter XIV-B
shall not be included in the regular assessment of the
previous years. The aforesaid Explanation supports in
view that there would be two assessments in the cases
of search or when section 132A is invoked, i.e.,
normal/regular assessments under section 143(1) or
section 143(3) of the Act; and Chapter XIV-B or block
assessment. Further, income included in the block
assessment would not be included in the normal
assessment and similarly income included in the normal
ITA No. 169/2005+connected appeal Page 60 of 77
assessment would not be included in the block
assessment. We shall be referring to several judgments
relied upon by the counsel for the respondent-assessee
which have decided the controversy whether income
should be assessed in the normal assessment or block
assessment by primarily relying upon the
said Explanation. This indeed is the correct
interpretation accepted by the courts. Thus, there can be
regular and block assessments for the same period. The
next question is what could be included or the scope
and ambit of block assessment and regular assessment.
The answer lies in conjoint and harmonious reading of
the sections 158B(b) and 158BB of the Act.
11. Section 158BB of the Act is a procedural provision
which deals with computation of undisclosed income
but is also a substantive provision because it seeks to
define what is to be included and can be made a subject
matter of the block assessment. Sub-section (1) refers to
the evidence found as a result of search or requisition of
books of account or other documents and such other
information as was available with the Assessing Officer
and relatable to such evidence. It postulates that
evidence found as a result of search or requisition of
books of account or documents as well as other
information relatable to such evidence could be taken
into consideration for the purpose of undisclosed
income for the block period. The income so calculated
shall be increased or reduced by the aggregate of total
income or loss of the previous years which have been
determined where assessment under section
143/144/147 of the Act had concluded prior to the date
of commencement of search or date of requisition; but
where returns of income have been filed under section
139/142(1)/148 of the Act, then such increase or
reduction shall be done on the basis of income
disclosed in such returns. Section 158BB(2)(b) of the
Act is indicative that the returned income, where
assessment had not been concluded or made, the
returned income would be treated as disclosed income
and any other income on the basis of evidence found
ITA No. 169/2005+connected appeal Page 61 of 77
during the course of search or requisition of books of
account or documents with other evidence relatable to
such evidence would be treated as undisclosed income
and, accordingly, made the subject matter of the block
assessment. The controversy that would remain is
whether in view of the said clause (b) where
assessments were pending, additions in block
assessment could still be made where no material or
evidence was found in the search relatable to the
disclosed income declared in the return, or the addition
should be made in regular assessment. Preponderance
of the judicial opinion appears to be in favour of the
normal or regular assessment and not for additions
under the head Undisclosed income in the block
assessment. Of course, this would not apply where
material has been found during the course of search or
on further enquiry relatable to such material or in cases
where expense, deduction or allowance claimed under
the Act was found to be false. In such cases, additions
could be made under sub-section (1) to section 158BB
of the Act.
12. At this stage, it will be relevant to also refer to
section 158BA(3) of the Act. Sub-section (3) of section
158BA of the Act relates to a part of the year which had
not ended or when the date of the filing of the return
under section 139(1) had not expired. In such cases,
income of the transactions recorded on or before the
date of search or requisition of the books of account or
other documents, etc., would not be included in the
block period. The said sub-section has to be read along
with section 158B(b) which defines, undisclosed
income. On harmonious construction, it follows that
said entry in the books of account should not be false,
otherwise they would be covered under the head
Expense, deduction or allowance which is found to be
false.
13. False or falsehood is a strong word and much
narrower than the word or term incorrect or legally
unsustainable. False or falsehood refers to element
ITA No. 169/2005+connected appeal Page 62 of 77
of mens rea or bad mental intention and would not
relate to claims which might be wrong because of legal
interpretation or has to be disallowed because of
technical defect and similar reasons. However, as
noticed below, this question does not arise for
consideration in the present case.
14. Clause (c) of section 158BB(1) of the Act as
enacted was substituted by the Finance Act, 2002, with
retrospective effect from July 1, 1995. The substituted
clause (c) deals with cases where due date of filing of
returns of income had expired but no return of income,
nad been filed, when either of the two conditions were
satisfied. As per sub-clause (A) of clause (c), income
for the block assessment would be computed on the
basis of entries as recorded in the books of account and
other documents maintained in the normal course where
such entries result in computation of loss for any
previous year falling in the block period. Sub-clause
(B) would only apply in a case where the income, as a
result of entries in the books of account and other
documents maintained in the normal course on or
before the date of search or requisition did not exceed
the maximum amount not chargeable to tax. Clause (ca)
deals with cases not covered by clause (c), i.e., when no
return of income had been filed but income was taxable.
Thus, where the due date of filing of return had lapsed
but no return had been filed and computation was not at
a loss or below the taxable limit, income as per the
books of account shall be treated as nil, even if as per
the books of account and other documents maintained
in the normal course, the income disclosed was above
the taxable limit. In such cases, irrespective of the
figures in the books of account or documents, income
has to be by default, taken as nil. Clause (ca) would
apply only when the date of filing of return has expired
and return of income has not been filed.
15. Clause (d) would apply to cases where previous
year has not ended or date of filing of return under
section 139(1) has not expired. In such cases income
ITA No. 169/2005+connected appeal Page 63 of 77
has to be computed on the basis of the entries relevant
to such income or transactions recorded in the books of
account or other documents maintained in the normal
course on or before the date of search.
16. XXX
17. Section 158BC of the Act relates to the procedure
for block assessment and postulates issue of notice for
filing of return for block assessment. The first proviso
states that in such cases, no notice under section 148
was required. Thus, it does away with the requirement
of notice under section 148 and recording of reasons for
the same. The said proviso is to be read with sub-
section (1) of section 158BA which gives an overriding
primacy to Chapter XIV-B. The second proviso states
that no revised return for block assessment can be filed.
Clause (b) of section 158BC states that the Assessing
Officer shall proceed to determine the undisclosed
income for the block assessment period and the
provisions of sections 142, 143(2), 143(3), 144 and 145
shall apply and as per the mandate of clause (c), block
assessment order has to be passed and tax payable has
to be determined. As per clause (d), the assets seized
under section 132 or requisitioned under section 132A
have to be accordingly dealt with in accordance with
section 132B."
39. Shailendra Mahto (supra) had examined several decisions of
different High Courts on the issue and had extensively relied on the decision
of the Supreme Court in A.R. Enterprises, (supra) interpreting the term
undisclosed income and in particular the expression had not been or
would not have been disclosed for the purposes of the Act.
ITA No. 169/2005+connected appeal Page 64 of 77
40. At this stage, it would be relevant to refer to the judgments relied
upon by the counsel for the respondent/assessee. Decision of the Supreme
Court in Assistant Commissioner of Income Tax and Another versus Hotel
Blue Moon, [2010] 321 ITR 362 (SC) had answered the issue and question
whether issue of notice under Section 143(2) was mandatory after return of
income for block period was filed by the assessee, who had been subjected
to search, pursuant to notice under Section 158BC of the Act. Agreeing
with the High Court, the Supreme Court held that it was mandatory to issue
notice under Section 143(2) for the purpose of Chapter XIV-B of the Act for
determination of undisclosed income for the block period. While deciding
the said issue, the Supreme Court observed that Chapter XIV-B provides for
assessment of undisclosed income unearthed as a result of search. These
provisions were devised to operate in distinct field of undisclosed income
and were in addition to regular assessments covering the previous years,
falling in the block period. Block assessment was not intended to be a
substitute for regular assessment and was a special procedure intended to
provide mode of assessment of undisclosed income done on the basis of
evidence found as a result of search, or requisition of books of accounts, or
documents and such other material and information as were available with
the Assessing Officer. The said decision does not directly relate to the point
and question before us. We would simultaneously now deal with the
decisions of the Delhi High Court in CIT versus Bluechip Construction
Company (P) Ltd., [2007] 213 ITR 530 (Delhi), Commissioner of Income
Tax, Delhi-VI versus Ashok Dua, [2009] 177 TAXMAN 494 (Delhi),
Commissioner of Income Tax versus Vishal Aggarwal , [2006] 283 ITR
326 (Delhi), Commissioner of Income Tax versus Ansal Buildwell Ltd.,
(2008) 304 ITR 378 (Delhi) and Commissioner of Income Tax versus DPA
Finvest Services Ltd., [2015] 376 ITR 399 (Delhi). In Vishal Aggarwal
ITA No. 169/2005+connected appeal Page 65 of 77
(supra), father of the assessee was subjected to search and seizure
operations. Nevertheless, the Assessing Officer had invoked Section 158BC
of the Act in the case of the son in respect of gifts of Rs.10 lacs and another
gift of Rs.20,000/-. In this context, it was observed that resort to Section
158BC was improper and contrary to law and holds that any post search
inquiry unconnected with material or information recovered during search,
would at best enable the Assessing Officer to re-open assessment under
Section 147, albeit would not be a ground to invoke Section 158BC of the
Act. This decision is, therefore, distinguishable as was considered and
observed in Shailendra Mahto (supra). In Ansal Buildwell Ltd. (supra), the
Division Bench referred to definition of the expression undisclosed
income vide clause (b) to Section 158B and the amendment made by
Finance Act 2002 with retrospective effect from 1st July, 1995 to Section
158BB(1) of the Act relating to computation of undisclosed income for the
block period and it was observed as under:-
10. On a reading of both these provisions of law,
which are inserted in the Act by the same amending
statute, that is, the Finance Act, 2002, it appears to us
that undisclosed income should be that which is
discovered as a result, inter alia, of a document or
transaction which has not been or would not have been
disclosed for the purpose of the Act. This pre-condition
does not arise in so far as the present case is concerned
because admittedly the document recovered during the
search represented a disclosed transaction of sale of
property that had taken place for which M/s. Televista
Electronics Limited had been paid a commission. In so
far as the falsity of the expense or deduction or
allowance is concerned, that must be necessarily be
relatable to the document or transaction. This is clear
from section 158BB(1) of the Act which specifically
requires that the material or information must be
relatable to such evidence. Therefore, both
requirements are necessary, namely, material showing
ITA No. 169/2005+connected appeal Page 66 of 77
that the amount has not been or would not have been
disclosed and that the expense, deduction or allowance
should be false on the basis of the unearthed evidence.
11. In so far as the present case is concerned, the very
first requirement, namely, of non-disclosure of the
material does not arise because in fact the assessee had
disclosed the transaction in its account books and this is
not disputed by the Revenue. Moreover, the sale appears
to have been considered by the Assessing Officer during
the course of regular assessment, although learned
counsel for the parties are not in a position to tell us the
exact facts. In any case, since the first condition itself is
not satisfied, the falsity of the claim being relatable to
that evidence does not arise.
Elucidation was that for invoking the provisions of Chapter XIV-B for
block assessment procedure, two requirements must be satisfied and the
requirements were cumulative. Firstly, there should be material or
documents showing that information had not been or would not have been
disclosed and secondly that the expense, deduction or allowance should be
false on the basis of evidence unearthed as a result of search. We would
observe that this decision has to be read in light of the ratio subsequently
expounded and explained by the Supreme Court in A.R. Enterprises (surpa)
which would now constitute the binding precedent. A. R. Enterprises
(supra) as noticed above, had expounded on the condition precedent for
taxing undisclosed income in block assessment in search cases, and
emphasised that it could include entries in the books of accounts or other
documents or transactions which wholly or partly represent income or
property which had not been or would not have been disclosed for the
purposes of the Act. Finality and absolute certainty would not be required at
the initial stage. More importantly, the Division Bench in Ansal Buildwell
Ltd. (supra) had stated and held that the issue of commission, subject matter
ITA No. 169/2005+connected appeal Page 67 of 77
of the block assessment, had been considered by the Assessing Officer
during the course of regular assessment, though counsel for the parties were
unable to state the exact facts. Thereafter, the Division Bench had referred
to the findings recorded by the Assessing Officer in the regular assessment.
Section 158BB(1) pertinently uses the expression relatable to evidence
found as a result of search or requisition of books of account or other
documents or such other material or information as available with the
Assessing Officer". Expression relatable to is wide in ambit and scope.
41. Similarly, decision in DPA Finvest Services Ltd. (supra) is
distinguishable for in the said case, the Assessing Officer had made addition
of more than Rs.33.75 lacs as unexplained credit under Section 68 of the Act
on the basis that the said assessee had received Rs.61,933/- by way of
accommodation entry from a company subjected to search and seizure
operations. After referring to Section 158BB(1) it was observed that the
Revenue had not been able to bring on record any information or material
that the additions made were relatable to the solitary accommodation entry
which was unearthed during the search.
42. Bluechip Construction Company (P) Ltd. (supra) follows the
reasoning given in Ansal Buildwell Ltd. (supra) while deciding the question
of addition of Rs.26,10,500/- in respect of credit appearing in the bank
account of the assessee to observe that the amount which had been disclosed
in the bank account maintained by the assessee to that extent cannot be
described as undisclosed income. It was held that the revenue`s contention
that the amount mentioned in the bank account would not have been
disclosed in the return, the due date for which was subsequent to the date of
the search cannot be answered in that manner, and that the burden and a
heavy one, was on the Revenue that they had not attempted to discharge. It
was held that to negate addition in the block assessment, it was enough if the
ITA No. 169/2005+connected appeal Page 68 of 77
amount disclosed by the assessee was in the bank account. In Ashok Dua
(supra), the assessee had received gifts from non-residents which were
credited in the bank accounts. These bank accounts were discovered during
the course of search and gift deeds and the affidavits in support of gifts were
also found during the course of search. Referring to the case of Vishal
Aggarwal (supra), it was observed that these gifts would be outside the
purview of Chapter XIV-B of the Act. On the question of undisclosed
income we have referred to the judgment of the Supreme Court in A.R.
Enterprises (surpa), which should be considered as settling the issue and
controversy. Earlier ratio contrary to the dictum in A.R. Enterprises (supra)
should be treated as over-ruled and not binding.
43. In Director of Income Tax (Exemption) versus All India Personality
Enhancement and Cultural Centre for Scholars Apieccs Society , [2015]
379 ITR 464 (Delhi), while interpreting Section 158B(b), which defines
undisclosed income for the purpose of Chapter XIV-B, it was observed that
it connotes assets or income which were taxable but the assessee seeks to
conceal the same from the authorities. In that case, it was observed that
surplus recorded by the assessee in the books of accounts maintained in the
normal course and which according to the assessee were not chargeable to
tax cannot be assumed to be undisclosed income as revenue believes them to
be taxable. Therefore, when the assessee subscribes to the view that a
particular amount was not taxable, and he was not required to file his return,
it would not be undisclosed income. Reference was also made to the
decision in Shri L.R. Gupta and Others versus Union of India and Others,
[1992] 194 ITR 32 (Delhi) which had considered the expression
undisclosed income or property in the context of Section 132 of the Act.
With respect we may note that for the purpose of Chapter XIV-B, the
expression undisclosed income has been specifically defined. Section 132
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relates to pre-search requirements and Chapter XIV-B incorporated a special
procedure for post search assessment in respect of "undisclosed income".
Definition ascribed to "undisclosed income" would guide and govern the
applicability of Chapter XIV-B or the block assessment proceedings.
Difference in clause (c) of Section 132 and expression undisclosed income
defined in Section 158B(b) of the Act was highlighted in Shailendra Mehto
(supra) after referring to observations made in N.R. Paper and Board
Limited and Others versus Deputy Commissioner of Income Tax, [1998]
234 ITR 733(Guj.). In this context, we may now refer to the decision of the
Rajasthan High Court in Commissioner of Income Tax versus Elegant
Homes Private Limited, [2003] 259 ITR 232 (Raj.) which with respect
reflects and resonates a compelling opposite view. The tribunal in the said
case had deleted additions of Rs.41,000/- as cash credits not proved as
genuine. Deposits of Rs. 41,000/- were recorded in the regular cash books
maintained by the assessee. Rajasthan High Court reversed the findings of
the tribunal and held that the Tribunal had committed an error by holding
that as the entries were found in the regular books of accounts, the entries
cannot be treated as undisclosed income. It was held as under:
10. Admittedly, Rs.41,400 had never been offered for
tax and it was never shown as income of the assessee,
the entries of these deposits were found in the regular
cash books maintained by the assessee. When the
entries were found in the books of the assessee, the
assessee could not explain the genuineness of the
deposits, this amount was never disclosed, it is an
undisclosed income of the assessee. The Tribunal has
committed an error in holding that as the entries were
found in the regular books of account, therefore, it
cannot be treated as undisclosed income.
11. The view is contrary to the provisions of Chapter
XIV-B of the Income-tax-Act, 1961. In Chapter XIV-B
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of the Act, special provisions for assessment in search
cases have been given and if any amount of income has
not been taxed and during the course of search, if some
"undisclosed" income is found on the basis of material
seized, that should be treated as undisclosed income as
per the scheme of special assessment under the
aforesaid Chapter.
44. It has been submitted on behalf of the respondent/assessee that in the
present case no evidence was found" as a result of the search in respect of
the gift and, hence, no addition could be made in the block assessment
proceedings. Reliance was placed upon paragraph 20 of the decision
Commissioner of Income Tax versus Harjeev Aggarwal, (2016) 229 DLT
33 and Commissioner of Income-tax versus Late Shri Raj Pal Bhatia,
(2011) 333 ITR 315 (Del). In the latter case, the High Court has observed as
under:-
13. The Tribunal has held that this statement could not
be treated books of accounts or other documents or
assets which only could be the basis for invoking the
provision of Section 158 BD of the Act. Admittedly,
statement of Mrs. Charla is neither books of accounts`
or assets`. The question, therefore, is as to whether this
statement can be treated as other documents`. Prima
facie, it is difficult to accept this proposition. Statement
was not the document which was found during search.
In fact this was the document which came to be created
during the search as the statement was recorded at the
time of search. Therefore, it cannot be said that the
statement was seized` during the search and thus,
would not qualify the expression document having
been seized during the search. In such a scenario,
proper course of action was reassessment u/s 147 read
with section 148 of the Act.
In Harjeev Aggarwal (supra), it was observed as under:-
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20. In our view, a plain reading of Section 158BB(1)
of the Act does not contemplate computing of
undisclosed income solely on the basis of a statement
recorded during the search. The words evidence found
as a result of search would not take within its sweep
statements recorded during search and seizure
operations. However, the statements recorded would
certainly constitute information and if such information
is relatable to the evidence or material found during
search, the same could certainly be used in evidence in
any proceedings under the Act as expressly mandated
by virtue of the explanation to Section 132(4) of the
Act. However, such statements on a standalone basis
without reference to any other material discovered
during search and seizure operations would not
empower the AO to make a block assessment merely
because any admission was made by the Assessee
during search operation.
45. In paragraph 13 of Late Shri Raj Pal Bhatia (supra), the Court had
expressed prima facie view that a statement recorded at the time of search
could not be treated as another document. Late Shri Raj Pal Bhatia (supra),
was a case relating to Section 158BD of the Act which relates to initiation of
block assessment proceedings against a third person who has not been
subjected to search and seizure operations on the basis that undisclosed
income belonging to him or whose books of accounts or other document
sheets or assets had been requisitioned. In the context of the said provision,
the Division Bench observed that the oral statement would not be covered
by the expression seized during the course of search and would not qualify
the expression document. However, no final or authoritative opinion was
given by the Division Bench on the said aspect as appeal of the Revenue
was rejected for the reason of absence of any satisfaction in writing by the
Assessing Officer of the searched person, in view of decision of the
Supreme Court in Manish Maheshwari versus Assistant Commissioner of
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Income Tax and Others, (2007) 289 ITR 341 (SC). Thus, Late Shri Raj Pal
Bhatia (supra) had not expounded a clear ratio on the aspect as is clear from
paragraph 16 of the said judgment, which reads as under:-
16. However, it is not even necessary to decide
this aspect authoritatively in these appeals, inasmuch
as, order of the Tribunal warrants to be sustained
because of the following reason.
46. However, in Harjeev Aggarwal (supra) it was observed that oral
statements recorded would constitute information, but if such information
was relatable to the material or evidence found during search. Then alone
oral statement could be used as evidence as expressly mandated by virtue of
Explanation to Section 132 (4) of the Act. Explanation to Section 132(4) of
the Act, reads as under:-
Explanation.- For the removal of doubts, it is hereby
declared that the examination of any person under this
sub- section may be not merely in respect of any books
of account, other documents or assets found as a result
of the search, but also in respect of all matters relevant
for the purposes of any investigation connected with
any proceeding under the Indian Income- tax Act, 1922
(11 of 1922 ), or under this Act.]
47. Evidence can be both - documentary or oral. Section 3 of the
Evidence Act, 1872 states that evidence means and includes all statements
which the court permits or requires to be made before it by witnesses, in
relation to matters of the fact under enquiry, and such statements are oral
evidence. Documents, including electronic records, produced for the
inspection of the courts, are called documentary evidence. Harjeev
Aggarwal (supra), thus confounds the confusion and does not help us
resolve conundrum and enigma of "undisclosed income". In the first portion
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of the judgment it was held that the evidence found as a result of search
would not take within its sweep statements recorded during the search and
seizure operations except when it was relatable to material or documents
found during the search. In other words, oral testimonies recorded under
Section 132(4) on a standalone basis without reference to other material
discovered during the course of search and seizure operations cannot be
treated as evidence and form the basis of addition as undisclosed income in
the block assessment. Mere admission during the search on oath cannot
result in addition as undisclosed income. This was notwithstanding
Explanation to Section 132(4) inserted by the Direct Tax Laws
(Amendment) Act, 1987 with effect from 1st April, 1989, which states that
the person could be examined not only in respect of books of accounts or
other documents found during the course of search but also in respect of
matters relevant for purposes of any investment connected with any
proceedings under the Act. In the context of Section 158BB(1) read with
Section 158B(b) of the Act, it was observed that despite the Explanation,
oral statement would be relevant and used only if incriminating document or
material was found during the search and seizure operation and not by itself
as incriminating evidence and gathered during search. Noticeably contrary
view has been taken by the Kerala High Court in Commissioner of Income
Tax versus M/s Hotel Meriya, [2011] 332 ITR 537 (Kerala) after referring
to Section 3 of the Finance Act and Section 131 of the Act. Oral evidence, it
was observed, would be admissible for the purpose of block assessment also.
Explanation to Section 132(4), it was emphasized, permits recording of
statement on oath for all purposes connected with any proceedings under the
Act.
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48. In the case of Harjeev Agarwal (supra), the question of law was
answered in favour of the Revenue and against the assessee in spite of the
ratio and observations made in the first portion after referring to A.R.
Enterprises (supra). It was observed that the requirement of addition of
Rs.74 lacs as undisclosed income was rightly made in the block assessment
proceedings as these payments in cash were not reflected in the books of
accounts, though subsequently the assessee had given an explanation as to
the source of the said money. In the said case, the transaction of sale of
immovable property was duly disclosed but part purchase consideration of
the cash element of Rs.74 lacs was clearly undeclared income. In the
aforesaid factual background, it was held that Rs.74 lacs should be treated as
undisclosed income taxable by virtue of Section 158B(b) as explained in
A.R. Enterprises (supra).
49. The word found is elastic and can be given varied meaning and
need not be restricted to a physical object found. The expression evidence
found could in the context of the block assessment include an incriminating
statement on oath. Statements on oath could be with reference to entries in
the statement of accounts, including bank accounts or may well refer to
acceptance or admission on utilization of unaccounted for money/income for
which physical/material and documents have been destroyed and were not
available/found, or were already in knowledge of the Revenue and,
therefore, were not found for the first time. Evidence found" could well
be oral evidence that would mandate addition as undisclosed income. The
word found is past and past participle of find, which means to discover
by chance or deliberately. It is normally associated with discovery of
information or a fact and in the context of investigation, detection of
someone in a wrong, lie or a crime. The word found, therefore, in natural
and normal context would in the context of evidence found include oral
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evidence or a statement made on oath and is not confined and restricted to
tangible material in form of documents or papers or an article. It is, in this
context, the Assessing Officer could refer to the facts or evidence as found
as a result of search and further inquiries thereupon.
50. In the present case, Revenue would submit that papers and documents
were found, which indicated that the assessee had not disclosed income from
six benami concerns. Books of account would also include the pass-books
or statement of bank accounts. It is in this context we would have to read
and understand the questions and answers given by the respondent /assessee
in his statements under Section 132(4) of the Act. Oral statement was and
should not be read in isolation, as respondent/assessee at the first and initial
stage had accepted that the gift of Rs.50,00,000/- was not genuine, and was a
subterfuge. Oral evidence and documentary material was collected during
the course of search regarding the undisclosed income. It is relevant that the
respondent/assessee in his block return had declared undisclosed income, i.e.
unaccounted income, to the tune of Rs. 86.82 lacs.
51. Given the aforesaid position, and in view of the aforesaid conflict and
divergence, having recorded our prima facie reservation on the view
expressed on "books of accounts" and more particularly on "oral statement "
not being evidence found, we are inclined to refer the question of
interpretation of the term undisclosed income for the purpose of block
assessment to a larger bench to resolve and iron out differences and bestow
and bring clarity. While examining the questions, the view expressed in
Harjeev Aggarwal (supra) on whether a statement recorded under Section
132(4) cannot be treated as evidence found during the course of search could
be considered and re-appraised. Larger bench could so examine the issue
and question whether it would be appropriate and proper, when addition
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made in block assessment is deleted and knock down for "technical"
grounds, for the Tribunal and Court to direct that the addition should have
been made in regular/normal assessment in terms of sub-section (6) to
Section 153 of the Act.
52. The appeals would be accordingly placed before Hon`ble the Acting
Chief Justice for being referred to a Larger Bench for deciding the issues
and questions hereinbefore noticed. The questions of law can be thereafter
answered by the Larger Bench or on the basis of opinion given and
expressed by the Larger Bench, on the appeals being listed before the roster
Bench.
-sd-
SANJIV KHANNA, J.
-sd-
PRATHIBA M. SINGH, J.
APRIL 23, 2018
SSN/VKR/NA
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