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Centaur Helicopter Services P. Ltd. Vs. Commissioner Of Income Tax
April, 21st 2017
                                            Reserved on: 06.01.2017
                                          Pronounced on:11.04.2017
+       ITA 478/2007, C.M. APPL.6708/2007
        ANUJ CHAWLA                                   ..... Appellant

+       ITA 1246/2007
        COMMISSIONER OF INCOME TAX                         ..... Appellant
        CENTAUR IMPEX P. LTD.                            ..... Respondent

+       ITA 479/2007, C.M. APPL.6717/2007
        CENTAUR IMPEX P. LTD.                    ..... Appellant

+       ITA 495/2007, C.M. APPL.6783/2007, 6784/2007 & 10687/2008
        ASHOK CHAWLA                                     ..... Appellant

+       ITA 817/2007
        COMMISSIONER OF INCOME TAX                         ..... Appellant
        ASHOK CHAWLA                                     ..... Respondent

+       ITA 988/2007
        CENTAUR HELICOPTER SERVICES P. LTD.                ..... Appellant
        COMMISSIONER OF INCOME TAX                       ..... Respondent

+       ITA 822/2008, C.M. APPL.9763/2008
        VIJAYA RAJAGOPAL                         ..... Appellant

ITA 478/2007 & connected matters                                Page 1 of 62
+       W.P.(C) 4299/2007. C.M. APPL.8052/2007, 4030/2008, 3249/2009,
        11752/2010, 2091/2014, 356-57/2017 & 499/2017
        ASHOK CHAWLA & ORS.                              ..... Appellants
        DIRECTOR OF INCOME TAX & ORS.                 ..... Respondents

+       W.P.(C) 7962/2009, C.M. APPL.4413/2009
        ASHOK CHAWLA                                           ..... Appellant
        COMMISSIONER OF INCOME TAX                           ..... Respondent

+       W.P.(C) 3517/2011
        ASHOK CHAWLA                                         ..... Appellant
        COMMISSIONER OF INCOME TAX                        ..... Respondent
                        Through : Sh. Roopchand, Advocate, for Sh.
                        Ashok Chawla.
                        Sh. Ankit Swarup and Ms. Tanya Swarup,
                        Advocates, for applicants, in C.M. Appl.356-
                        Sh. Ashok. K. Manchanda, Sr. Standing Counsel,
                        for Income Tax Department, in Item Nos. 1 to 10.
1.   This batch of appeals under Section 260-A of the Income Tax Act
("the Act" hereafter) and writ petitions arise from scrutiny assessments made
pursuant to a search and seizure operations conducted in 1995. The assessees
are aggrieved in one batch of matters; the Revenue claims to be aggrieved, in
two appeals. The essential facts are narrated below, after which individual
grounds urged in the various appeals and writ petitions would be dealt with.

ITA 478/2007 & connected matters                                    Page 2 of 62
2.      The main assessee/appellant, Ashok Chawla (hereafter called by his
name) had served in the Indian Army from which he retired in 1984 and
went on to found M/s. Centaur Helicopter Services (P) Ltd (hereafter
"Centaur") with him and his wife as its directors. Centaur was an authorized
dealer of M/s. Schweizer Aircraft Corporation USA ("Schweizer" hereafter)
for purchase and sale of its helicopters in India. Ashok Chawla was also
consultant to M/s. Capitex Impex (P) Ltd. for manufacture of leather goods.
The Revenue had claimed or rather suspected that Ashok Chawla used to
earn income from defense deals and contracts, which he did not account for
in his income tax returns and he instead claimed to be an army pensioner and
salary income earner from Centaur. On 31st August, 1995, a search and
seizure operation was carried out by the Revenue in his premises as well as
those of his companies, concerns and individuals associated with him. This
resulted in seizure of several documents, cash and other materials.
3.      Ashok Chawla and others who received notices, pursuant to the
search, filed block returns for the period AY 1985-1995. Ashok Chawla
declared undisclosed income to the extent of `39,86,916/-. In the assessment
order by the Assessing Officer (AO), the income assessed for the block
period that was brought to tax was `17,77,29,193/-. Ashok Chawlas appeals
to the Income Tax Appellate Tribunal (ITAT) failed; it dismissed his appeals
by the impugned order, dated 26th December 2006. That impugned order is
the subject matter of challenge in ITA 495/2007. Initially, the validity of
search proceedings had been challenged in a writ petition, W.P.(C)
1518/1997, which was disposed of by an order dated 1 st August, 2001, which
expressed the opinion that since the issues concerned were factual, the ITAT
ought to consider and return findings on them. The ITAT, in its impugned

ITA 478/2007 & connected matters                                      Page 3 of 62
order, held that it lacked competence to examine the validity or legality of
search and seizure. Therefore, Ashok Chawla, in a freshly filed writ petition
(W.P.(C) 4299/2007) questions the validity and legality of search and seizure
proceedings, on diverse grounds, including that it was motivated by legal
malice, mala fides, tainted inasmuch as it was premised upon the information
of a former partner and his ability to bring about pressure, and technical
grounds such as improper search in the absence of proper witnesses and
lastly, that the assessment order was made by the officer who searched the
premises. Ashok Chawla has also challenged the order of the ITAT,
declining his application for rectification of its main order in his appeal (in
his application MA 57/Del/2007 before the tribunal) by filing W.P.(C)
4.      The additions that were the subject of Ashok Chawlas appeals were
discussed in relation to Ground Nos. 5 to 16. These were on account of
various materials seized during the search and seizure operations listed
(1)     A slip of paper which contained the description of an account (No.
53745) with Discount Bank Trust Co, Switzerland (Discount Bank, for
(2)     Visiting card of Dr. VRS Fricker, Vice President of Discount Bank;
(3)     Telephone bills containing a record of several calls between Ashok
Chawla and Dr. Fricker;
(4)     A typed telex addressed to Fricker which instructed the latter to
transfer US $ 40,000 to an account with National Westminster Bank and for
also instructing him to transfer US $ 10,000 to Anuj Chawla, son of Ashok
Chawla. The document sought confirmation within an hour.

ITA 478/2007 & connected matters                                     Page 4 of 62
(5)     A request for bank guarantee (dated 4th October, 1994) made to
Discount Bank, in relation to an account number (No. 53745 ZV) clearly
stated on the face of the document, which requested for issuance of a
guarantee for GBP £100,000 favouring Duncan Lawry Ltd, London securing
all accounts and securities held with the bank. The relevant portion of the
said letter reads as follows:
        "In this connection, I/we assume entire responsibility towards
        you for this co-operation as well as for all consequences of any
        kind or nature which may arise for you due to the issuance of
        this guarantee of your surety."

(6)     Documents showing that `1,15,72,668/- was paid for by Ashok
Chawla, to purchase two Schweizer helicopters. This included a letter dated
31.08.1994 by Rocky G. Peter of Schweizer Corporation, USA addressed to
the Director General, Civil Aviation, showing that they had been sold to
Centaur. The letter stated that Schweizer had "recently sold two Schweizer
300C/Model 269 C helicopters to Centaur Helicopter Services in Delhi.."
and that the helicopters were manufactured under production certificates of a
particular type or standard which was acceptable in India. There was another
letter, i.e of Micheal D. Oakle of Schweizer who was its treasurer, dated 3 rd
January, 1995 which indicated that the two helicopters were sold to Centaur
for a consideration of US $ 196,166.10 pursuant to its purchase order and
that at the latter's request, it was being held by the said seller at its
(Centaurs) risk at its premises; further the letter stated that the title had
passed to the said buyer, i.e. Centaur.
(7)     A letter dated 30.08.1994 from Centaur stating that payment would be
made to Schweizer between 5th and 9th September, 1994. The letter stated

ITA 478/2007 & connected matters                                     Page 5 of 62
that the invoice would have to be changed to that of United India Airways
Ltd. The assessee who had written the letter, stated further that:
         "Also, a provision will have to be made to show that the source
        of funds for these Helicopters which I am claiming that these
        Helicopters are being brought on lease and therefore quarterly
        payments have to be repaid to you through the lease charges till
        the full payment along with interest of 7% has been made."

(8)     Documents showing Ashok Chawlas possession of a property at 105,
Queens Road, Reading, Berkshire, London also showed renewal of insurance
in respect of certain assets in that flat; further a letter by Ashok Chawlas
wife to HUDA, disclosing that he lived in that flat, were also found and
5.      The assessee/Ashok Chawla's explanation was that the account
number with Discount Bank, Switzerland was of M/s. Capitex of which he
was only a consultant. The AO and the ITAT rejected this argument by
saying that Swiss bank accounts were inherently kept confidential and that a
consultant could not be expected to be in possession of details; furthermore,
Ashok Chawla's frequent telephonic conversations with the Vice-President
of the bank painted another picture. In addition, the bank had been asked to
issue a guarantee in relation to that account. Another letter asking for transfer
of funds from that account to other accounts, such as that of his son, were
found. The assessee had also argued that a search party had planted
documents - a plea that was rejected by the Tribunal. The Tribunal held that
there was no material or correspondence found or disclosed showing linkage
of the account with M/s. Capitex or any documents showing authorisation
from M/s. Capitex to issue bank guarantees with respect to two Schweizer
helicopters. The assessee had argued that M/s. Capitex had made the

ITA 478/2007 & connected matters                                       Page 6 of 62
payments. The AO and the Tribunal relied upon the documents of Rocky. G.
Peter of Schweizer and the Treasurer of Schweizer USA's letter dated
03.01.1995, which confirmed that helicopters were sold to the assessee. The
assessee's letter asking for change of invoice favoring United Airways India
Ltd. was also relied upon. The assessee's explanation was that he had an
office in Moscow maintained by Allan Saltmer, Director of M/s. Capitex,
and his business associate and that he was visiting Moscow at the behest of
the principal, i.e. M/s. Capitex and Allan Saltmer for which he would be
given money was rejected. The Tribunal said, "in case Mr. Saltmer had only
occasionally given money for payment on his behalf, how a detailed and
elaborate account of all expenses were found from the premises of the
assessee. No logical explanation is coming forth. Moreover, no reliable and
authenticated evidence has been produced showing that the office had been
maintained by Saltmer and that expenses were declared in his account."
6.      With respect to the London flat, the assessee argued that the property
was the rented office of M/s. Capitex and relied upon a letter. Such material
was held to constitute ex-facie evidence to rebut the presumption that the
assessee in fact owned the property and had paid substantial amounts
towards it. The ITAT concluded that Ashok Chawla's explanation was an
attempt to fabricate an explanation for the seized documents.
7.      In Ground nos.7 and 8, the assessee had challenged the addition of
`53,84,258/- explaining that the source of money was his son's income
which he earned when he worked as a flight and ground instructor. The
ITAT examined the appeal of Sh. Anuj Chawla, son of Ashok Chawla and
held that the additions made to his tax returns were correctly done. The
amounts were deleted by the ITAT on protective basis. The next ground, i.e.

ITA 478/2007 & connected matters                                     Page 7 of 62
No.8 related to an addition of `51,12,392/- in the bank guarantee of M/s.
Centaur Impex on 01.11.1994, a transfer from Centaur Helicopters. This was
found to be a foreign remittance by the AO, wrongly credited in the account
of Centaur. According to Ashok Chawla, the source was an advance received
from Centaur Impex by Thrustom Telecom UK for garment export. The
addition of this amount was upheld in the case of Centaur Impex. Therefore,
the protective assessment in the case of Ashok Chawla was deleted.
Likewise, in respect of `40,65,086/- which was a credit in the account of
Centaur Impex on 20.02.1995, the explanation given was that the source of
deposit was an advance from M/s. Aviv Exports Moscow for export of
leather jackets worth US$ 130,000 in terms of the contract dated 30.09.1995.
The AO held that the explanation was unsatisfactory and added it to the
account of Centaur Impex on substantive basis and to the account of Ashok
Chawla on protective basis. This was again like in the case of previous
accounts, deleted.
8.      After analyzing the documents and materials seized, the findings of
the AO and the submissions of the parties, the ITAT rendered specific
findings with respect to each heads of income and addition in para 20.1 to
20.7.7. It rendered its decisions with respect to certain miscellaneous items
and grounds between para 21.1 to 21.9. The Tribunal concluded (para 7.10
and 20.3) that M/s. Capitex was only a front put up by Ashok Chawla to
explain various transactions and could not be given any importance. It
upheld the rejection of his explanation with respect to purchase of
helicopters on behalf of M/s. Capitex. The ITAT therefore, upheld the
findings that Ashok Chawla was bound to explain the source of payment -
which he had not given satisfactorily. The discount allowed, i.e. $ 85,364

ITA 478/2007 & connected matters                                    Page 8 of 62
was held to be unsustainable and was therefore, deleted by following the
reasoning that such amount merely reduced the value of the helicopter of
which the assessee was the purchaser. Likewise, the claim of reimbursement
of `1,37,79,186/- from Rakesh Gupta for which the Ashok Chawla gave an
explanation was held to be unsatisfactory. This amount included a sum of
`54.78 lakhs on account of payment to the helicopters and `29,51,186 on
other counts. Reliance was placed upon payments made by M/s. Capitex -
clear from a letter dated 08.03.1995 and MOU dated 05.07.1993 - both of
which had been seized. These showed that M/s. Capitex had agreed to pay
US $ 1,66,000 to Swidnik. The ITAT therefore held that addition was un-
justified only on the basis of statement of Rajesh Gupta. However, the ITAT
also returned findings:
        "20.4 .........On careful consideration, we find that addition
        has been made not only on the basis of statement of Shri Rakesh
        Gupta. Details of these expenses had been found from the
        premises of the assessee. There is no dispute that the seized
        documents showed payment of Rs.5478000/- for purchase of
        Sokol Helicopter. The assessee is therefore, required to explain
        the source of these payments by a reliable evidence. As regards
        the letters from M/s. Capitex, we have already examined this
        aspect in paras 7.10 of this order and concluded that capitex is
        only a front company put up by the assessee to explain various
        transactions which had been seized. Several blank letter heads
        of the said company were found from the premises of the
        assessee. As mentioned in the earlier part of the order, a Swiss
        bank account number was also found in respect of which the
        assessee had issued a guarantee letter, which can be done by
        only an owner but the assessee had procured letters from
        Capitex claiming that the account belonged to them. The
        assessee is either the owner of the Capitex or the latter had
        been put up as a front to explain huge unaccounted money
        earned through different deals. The letters from Capitex cannot

ITA 478/2007 & connected matters                                     Page 9 of 62
        therefore, be accepted as reliable evidence. No credible
        evidence such as copies of bank account/audited accounts has
        been produced regarding the source of payment for purchase of
        Sokol Helicopters by anybody else. The explanation of the
        assessee regarding source of payment has therefore, been
        rightly rejected by the AO"

9.      The ITAT further upheld the commission at 15% not disclosed by the
assessee from the documents seized, on account of supply of Kraz 260 trucks
to Ukraine - `24,67,50,000/- and a contract for MI platforms for a
consideration of US$ 50,40,000/-. The addition made in these two accounts
was `44,21,2500/- and `2,41,92,000/-. The addition made on account of
reimbursement of expenses from Rakesh Gupta was `29,51,186/-.
10.     On an overall analysis, the ITAT sustained the addition of
`7,37,00,000/- as against addition of `14,98,66,417/- made by the AO which
was the subject matter of Grounds 5, 6, and 10 to 16. The other substantial
amounts brought to tax was ` 4 lakhs seized from the locker of ND Vault,
Defence Colony - `2,36,000/- and `25,00,000/-. On these, the findings of
ITAT are as follows:
        "21.7 We have perused the records and considered the rival
        contentions carefully. The explanation of the assessee
        regarding the cash of Rs.4 lacs found from locker no.1403 is
        not convincing. It is not understandable as to why the assessee
        will withdraw money from bank account at different points of
        time and keep it in cash with his father to be deposited later in
        the locker. The money found in the locker was also found to be
        in the same denomination of Rs.500/- and serially numbered.
        The explanation has, therefore, been rightly rejected by the AO
        and the addition made on this account is upheld. As regards the
        cash of Rs.20,000/- found from locker no.6003, the amount
        being small, the explanation of the assessee in our view has to

ITA 478/2007 & connected matters                                     Page 10 of 62
        be accepted. The addition made on this account is accordingly

        21.8 As for the liquor bottles, it is an undisputed fact that
        large quantity of liquor had been recovered during the course
        of search. The explanation of the assessee that the same were
        bought on the visits abroad or gifted by friends abroad and
        brought to India but his pilot son, is not supported by any
        evidence and has to be rejected. However, as we have held that
        the assessee was engaged in the business of defense and other
        deals at international level on a large scale, the consumption of
        liquor has to be considered as normal business expenditure in
        connection with such deals. As we have already determined the
        income from such deals, no separate addition on account of
        such expenses is required to be made. The addition made on
        this account is, therefore, deleted.

        21.9 The seized documents have shown that the assessee
        contributed a sum of Rs.25 lacs in cash towards the setting up
        of the company - Centaur Impex. The explanation by the
        assessee is that the contribution has been made through
        Centaur Helicopters and the method adopted was to have cross
        holdings of shares worth Rs.25 lacs in two companies and the
        same money was shown as capital in both the companies.
        However, this does not explain the source of investment made
        by the assessee. The claim of the assessee that the peak amount
        was only Rs.5 lacs, has not been examined by the AO. In our
        view, this aspect requires fresh examination. We, therefore,
        consider it appropriate to restore the matter to the file of the
        AO for passing a fresh order after examining various details
        given by the assessee and after allowing opportunity of being
        heard to the assessee."

11.     Since these appeals and writ petitions were pending for a long time
and had been repeatedly adjourned at the request of one or the other party,
and on account of the Court's inability to devote substantial time, questions
of law had not been framed. Therefore, with the assistance and consent of the

ITA 478/2007 & connected matters                                     Page 11 of 62
learned counsel, the appeals were taken up. The following questions of law
are formulated in ITA 495/2007, W.P.(C) 4299/2007, W.P.(C)7962/2009
and W.P.(C) 3517/2011.
(i)   Whether there was legal justification for the search and seizure

(ii) Did the ITAT fall into error in concluding that there was no infirmity
in the framing of the assessment by an officer who was involved in the
search and seizure operations?

(iii) Whether Ashok Chawla was given sufficient opportunity during the
assessment proceedings;

(iv) Whether the additions sustained by the ITAT are justified or are
unreasonable or perverse.

First question: Legality of the search and seizure operations

12.     Attacking the validity of the search, Ms. Premlata Bansal, learned
senior counsel relied upon the decision of the Allahabad High Court in
Shyam Jewellers & Anr. v. Chief Commissioner of Income Tax 1992 (196)
ITR 243 which held that there should be sufficient objective material to
believe that a person is in possession of money, bullion or jewellery to
record satisfaction under Section 132 of the Act, justifying a warrant for
search of the premises. Similarly, learned counsel relied upon ITO v. Seth
Brothers 1969 (74) ITR 836 (SC) for a similar proposition. The Supreme
Court had also observed that the provision cannot be construed as offering
arbitrary authority upon the revenue officers. The Commissioner or the
Director should have reason to believe consequent to information that
statutory conditions for exercise of power to search exist. The reasons should
be recorded and should precede the authorisation. If and only if the officer

ITA 478/2007 & connected matters                                    Page 12 of 62
has reason to believe that there are books or accounts otherwise useful for or
relevant to proceed under the Act would be justified in authorizing the search
and seizure of such material. The court had then stressed that, "since by the
exercise of the power a serious invasion is made upon the rights, privacy and
freedom of the tax payer, the power must be exercised strictly in accordance
with law and only for the purpose of which the law authorises it to be
13.     Learned senior counsel for the assessee also relied upon the judgment
in HL Sibal v. Commissioner of Income Tax 1975 (101) ITR 112 (P&H), to
say that information is not something which is part of the existing record but
something outside of and new. Furthermore, such information should be
relevant for concluding a satisfaction that they would be material, in the
course of an assessment. Learned counsel relied upon the observations that if
an assessee has been regularly producing his books of accounts before the
authorities who is accepting those books and has been maintaining in the
proper course, it would be unjustified use of power to issue search warrant
for production of those books of accounts unless information is to the effect
that he has been keeping some secret books as well. The judgment in Harnet
Singh v. UOI 1993 04 ITR 334 (P&H) and CIT v. Davy Ashmore India Ltd.
1982 137 ITR 456 were relied upon.
14.     It was furthermore submitted that the post facto justification in the
form of findings concluded has been sufficient to justify a search, would be
of no avail. Learned senior counsel stressed here that the precondition for
exercise of the power is the reasonable plea as to the existence of material
and the recording thereof in the official file, as a necessary step towards the
issuance of the warrant. Learned senior counsel submitted that in the facts of

ITA 478/2007 & connected matters                                    Page 13 of 62
this case, the entire effort of the Revenue was to justify its unlawful search in
the premises of the assessee and his relatives and associates by such post
facto justification. It was submitted that search and seizure proceedings were
in any event motivated by malice on account of the unlawful pressure that
was sought to be put upon Ashok Chawla at the behest of one of his
associates who was closely related to an Income Tax Commissioner. Since
he did not budge and did not accede to the demands made, the premises were
unlawfully searched. In this his previous associate, Sh. Rakesh Gupta
appeared to have a prime involvement.
15.     It was argued on behalf of the assessee by learned senior counsel that
one concern, M/s. Mals Deoghar Airlines Limited was incorporated in India,
headquartered in Delhi in 1992 by 7 individuals, four of whom were Indians
and three Russians with authorized share capital of `1 crore. The initial share
capital issued was only `7000/- in August 1992. The company was later on
taken over by Rakesh Gupta; Ms. Sudesh Kapila, wife of KK Kapila, IRS;
Sh. Vinod Jain and Sh. Yogesh who were appointed as Directors in various
companies in 1993. The company showed its balance sheet with paid up
capital of `50,07,000/- and share capital money of `31,00,62,500/-. The
assets showed aircraft valued at `31,00,62,500/-.
16.     It was argued that Rakesh Gupta approached Ashok Chawla with the
balance sheet and induced him to join the Airlines and acquire 50% of its
issued paid up share capital. He therefore, invested `22,50,000/- (` 5 lakh
shares @ ` 4.5 per share). Ashok Chawla and his wife later joined the Board
of Directors in 1994. In 1995 he became aware that the aircraft worth `31
crores shown in the balance sheet never existed and was owned by a Russian
company, being Mals Airways and that the share application of `31 crores

ITA 478/2007 & connected matters                                      Page 14 of 62
shown in the balance sheets were bogus. Ashok Chawla, therefore, submits
that he was cheated by being induced to invest `22.5 lakhs in Mals Airways.
Yet another company, i.e. United India Airways Ltd. was incorporated in
1993. Sudesh Kapila; Suresh Batra and Rakesh Gupta took over this
company from him in 1994. On 07.09.1994, an agreement was entered into
between Rakesh Gupta and Ashok Chawla by which `21 lakhs was invested
by Ashok Chawla in the company, i.e., United India Airlines Ltd. towards
share capital during the period November 1994 to March 1995. The assessee,
however, was never consulted. Thus, Ashok Chawla invested `43 lakhs in
these two companies. He later became aware that both the companies were
non-functional and was induced to make substantial investments in them by
Rakesh Gupta.
17.     It was submitted that Rakesh Gupta and K.K. Kapila agreed to pay
`1.34 crores to Ashok Chawla. This, however, did not materialize and on
06.07.1995, the assessee agreed to pay `25 lakhs to K.K. Kapila and Rakesh
Gupta who were to leave the two companies. As the amounts were to be paid
by 30.08.1995, Ashok Chawla could not arrange for the payment but instead
subjected to write off his premises on 31.08.1995. Relying upon these
allegations, it was urged that the search was dented by mala fides and
motivating complaints in the form of information engineered by K.K. Kapila
at the behest of Rakesh Gupta.
18.     It was submitted that the appellant cannot be left remediless and that
there has to be proper adjudication of these facts, i.e. the manner in which
warrant was issued and reliance on information that preceded it. Though
extensive arguments were made on behalf of the assessee, the ITAT declined
to return a finding on account of its special bench ruling in Promam Limited

ITA 478/2007 & connected matters                                    Page 15 of 62
v. DCIT 2005 (95) ITD 489. It was submitted that the search in the present
case was used as a claw to damage the assessee's business reputation and
goodwill and to wreck vengeance and to destroy him. Furthermore, the
search itself was dented on account of various irregularities during the
process such as planting of evidence in the form of letters, documents,
illegalities in the form of absence of independent witnesses, forcible entry
into the premises of Ms. Vijaya Rajagopal etc. Learned counsel submitted
that despite requests, the assessee had not been permitted and denied access
to any inspection of the documents seized. Therefore, they in fact make any
meaningful submissions to utterly unjustified inferences and findings based
on conjectures, drawn by the Revenue, which formed the basis of AO's
19.     Learned counsel submitted that such violation of principles of natural
justice vitiates the order and relied upon L.R. Gupta v. UOI 1992 194 ITR
32. Learned senior counsel relied upon the letters dated 22.11.1995,
26.08.1996 and 17.09.1996.
20.     In the course of hearing, the Revenue had produced copy of the
documents and material as well as file notings which formed the basis for the
warrant in a sealed cover, no doubt, a perusal of the impugned order of the
Tribunal establishes that it declined to pronounce upon the validity of the
search proceedings on account of its previous special bench ruling as well as
the judgment of this Court in M.B. Lal v. CIT 279 ITR 298. No fault
therefore, can be found with the impugned order.
21.     At the same time, this Court has to nevertheless examine
independently whether the search proceedings were indeed justified having
regard to the entirety of the circumstances. Since elaborate submissions were

ITA 478/2007 & connected matters                                    Page 16 of 62
made in this regard, in fact the petitioner had approached this Court earlier
by filing W.P.(C)1518/1997, which was subsequently disposed of. The
validity of the warrant and the search proceedings is the subject matter of
challenge in W.P.(C) 4299/2007.
22.     It is sufficient to record that the material, which led the Director of
Income Tax to authorise search, was based upon information supplied. These
spoke of substantial assets held by the assessee, which was not accounted for
as well as receipts, which were not declared. The assessee's principal
submissions with respect to reliance upon such material primarily stems
from Ashok Chawla's narrative of his being duped by Sh. Rakesh Gupta and
Ms. Kapila According to him, the inducements extracted through
investments in M/s. Mals Airways and M/s. United India Airways Ltd. were
duds and that he sought a return of that money when it was discovered that
he was duped. Apparently the two individuals agreed to return the amounts
and the sum of `1.34 crore was initially agreed. Later they expressed their
inability to do so and a counter offer was made by Ashok Chawla to buy out
their shares from the two companies by acquisition and pay them `25 lakhs
by 30.8.1995. As far as the narration goes, the argument is plausible. The
difficulty, however, for this Court to accepting these submissions is that such
contentions is entirely unsubstantiated. To compound the matter, there are
internal contradictions as well. If in fact, M/s. Mals did not possess the assets
declared, i.e the form of aircraft valued at over `31 crores, Sh. Ashok
Chawla was undoubtedly justified in asking for the return of the money.
Thus, his argument with respect to the counter offer for `25 lakhs to acquire
the shareholding of the two companies begs an explanation. In other words,
if the entire corporate entity is a dud and in fact a shell company (as Mas and

ITA 478/2007 & connected matters                                      Page 17 of 62
United India Airways Ltd. were, allegedly according to the assessee Ashok
Chawla) in which he had substantial holding, there was no explanation
forthcoming as to why after asking for return of that money for exiting from
that company, he wished to acquire the entire shareholding of the company.
Furthermore, if indeed, the assessee wished to exit from United India
Airways Ltd. (of which he was a substantial shareholder) there is no
explanation from him as to why he wrote - which he did, a letter to
Schweizer Helicopter, requesting that the invoice for the helicopter be made
out in the name of the United India Airways. Therefore, this Court is un-
persuaded in regard to the arguments that the motivation for the complaint
that led to the search were on account of some business falling out or
differences between him and his earlier colleagues. As to why in fact the
submissions of the assessee that search was at the behest of Ms. Kapila's
husband since he was powerfully placed in the Income Tax department at
that stage, did not appear to be well founded. In fact Mr. Ashok Chawla was
well aware of Ms. Sudhir Kapila was the wife of senior Income Tax official
despite which he did not involve himself in the business of two companies
where he invested. More importantly, the allegation that Sh. K.K. Kapila
brought pressure and used his official position in an unfair manner can no
doubt be made; yet it has to be established by credible evidence. In this case,
there is no evidence whatsoever - either direct or in the form of letters or
material, giving Ms. Sudhir or her husband, or circumstantial evidence.
Having regard to these factors, the Court holds that the plea that the search
was on account of motivated allegations is without substance.
23.     It was argued that Ravi Kumar, one of panchas at 2 Under Hill Road,
Civil Lines, New Delhi, was shown as witness at C-517, Defence Colony

ITA 478/2007 & connected matters                                    Page 18 of 62
garage where search was started on 31.08.1995 at 08.10 PM and was
concluded on 01.09.1995 in the morning at 4.30 AM. Counsel for the
asseessee argued that in his affidavit, Ravi Kumar stated that the search at
Civil Lines was started at 08.00 AM and concluded at 09.55 PM on
31.08.1995. The search of Defence Colony was at about 11.00 PM after
conclusion of search at Civil Lines which is at a distance of 20 KM approx.
Thus the search was already started 03 hours prior to his reaching at Defence
Colony. Mr. Ravi Kumar was not aware of the activities which took place
between 08.10 PM to 11.00 PM. This wholly improbabilizes the search
proceedings. Counsel next submitted that the raiding party had taken ingress
by forcing the locked premises of Defence Colony Garage open, when the
keys were already available with Ms Vijaya Rajagopal, the assessees
manager, who was present at the relevant time at 2, Under Hill Road, Civil
Lines, Delhi where the search and seizure operation was being carried out
simultaneously. By the time, Ms. Vijaya Rajagopal reached Defence Colony
premises, the search party had already bunched-up all the papers and made
Vijaya to sign on the dotted lines. These irregularities, said counsel were
committed deliberately so as to plant certain documents with impunity
without any check and control either by the panchas or by Ashok Chawlas
24.     Rule 112(6) of the Income Tax Rules requires the authorized officer to
call upon two or more respectable persons to witness the search. The
Panchnama drawn at C-517, Defence Colony, shows two witnesses: Mr.
Ravi Kumar and Mr. D.S. Mann. Mr. Ravi Kumar reached at the venue after
three hrs of commencing the search. Moreover, D.S. Mann was allowed to
go to sleep and was called only in the morning when the search was going to

ITA 478/2007 & connected matters                                    Page 19 of 62
be wound-up. It is argued that this renders the search illegal and also prima
facie provided opportunities to the search party to plant documents handed
over by Shri Rakesh Gupta to ADI Shri D R Chaudhary.
25.     Counsel stated that it is evident from the panchnama at Defence
Colony Garage that the raiding party had not offered themselves for personal
search nor was it declined, obviously because no one was present to do so,
on behalf of the assessee. This again is a circumstance, suggestive that the
raiding party enjoyed complete freedom in the matter of planting of the
26.     It was urged that due to harassment at the instance and motivation of
Rakesh Gupta, Petitioner lodged complaint against him before IB, CBI and
Police Dept. He also filed civil & criminal case against him i.e. Civil case
for recovery of money introduced in ,,Mals & ,,United & criminal case for
cheating him.          Facing with these trials, Sh. Rakesh Gupta offered
compromise through Court, according to which he offered demand draft of
`1 lakh & two post dated cheque for `45 lakhs. During the period Rakesh
Gupta also filed an affidavit to the effect that he handed over a slip of hand
written papers about a Discount Bank with Account number and its address
to the revenue officials. This slip was planted in the seized documents
during search. It is not identified -either by witnesses or by the authorized
officer or Chawlas representative.
27.     It was also urged that no one was present at E-6, Anand Niketan, New
Delhi, except one employee - Bhagirathi Sibbal, the receptionist. The search
commenced on her arrival at 9 AM; however, the Panchnama stated that the
search commenced at 8 AM. Kishan Lal and Hayat Singh, peons were the

ITA 478/2007 & connected matters                                    Page 20 of 62
witnesses. Mrs. Sibbal and Kishan Lal deposed in affidavits that the search
party did not offer themselves for search.
28.     These irregularities, said counsel, were intentionally committed so as
to plant certain documents. The affidavit of Sh. Rakesh Gupta; Mukul Sarin
tape recorded conversation between the assessee, Sh. Rakesh Gupta and Sh.
Anil Kapur S.I. of crime branch, prove the planting of documents. The
respondent denied even the assessees request for inspection of file and
connected material on the basis of which the search was authorized. Thus,
the petitioners are unable to make an effective, meaningful presentation of
the case.
29.     At the outset, this court notices that the primary evidence of tape-
recorded conversation, i.e., the tapes, were not produced before the ITAT
during the hearing. The ITAT concluded therefore that such taped
conversation could not be taken as reliable evidence. The "planted material"
contained Swiss bank account particulars and other related documents. The
assessee had relied upon an affidavit of Rakesh Gupta and one Sh. Mukul to
argue that this material had been handed over later. Significantly these
affidavits were of much later vintage. In fact during the course of appellate
proceedings, Ashok Chawla had relied upon an affidavit of Sh. Rajiv Gupta
dated 06.07.2000 which affirmed the contentions of a previous affidavit
dated 10.3.1997. A copy of another affidavit has also been placed on the
record, which too is dated 06.07.2007 in which Rakesh Gupta states, "I have
settled off important disputes/differences with Sh. Ashok Chawla amicably
with the help and intervention of common friends."
30.     Now these documents bespeak of a post-search settlement, between
Ashok Chawla and Rakesh Gupta, which appears to have motivated Sh.

ITA 478/2007 & connected matters                                    Page 21 of 62
Rakesh Gupta to have alleged with respect to the planting the material. No
attempt was made during the course of hearing, before the AO or the ITAT
to suggest that the material allegedly planted had not been included in the
inventory or list of items recovered. Furthermore, none of the letters
contemporaneously written by Ashok Chawla, in fact alleged such conduct.
As a result, this Court holds that these allegations like in the case of mala
fides have not been proved. The record also shows that after Chawla lodged
a criminal complaint for cheating, the parties reached a settlement, involving
payment of amounts by Rakesh Gupta. The credibility of the affidavits relied
upon, by Ashok Chawla, in these circumstances is suspect, to put it mildly.
31.     As far as the alleged illegalities in the timing of the search, or that it
was improbable that searches took place at two places - argued with certain
vehemence by learned senior counsel, this court is of the opinion that
nothing much turns on these so called infirmities. For one, the factual nature
of these allegations, i.e., as to timing, as to presence of certain pancha or
recovery witnesses, renders it somewhat difficult to substantiate. From a
broader angle, whether the search occurred at 08:00 AM or an hour later, is
left for verification by affidavits signed by the witnesses much after the
event. Their signatures on the panchnamas at the time of the search belie the
affidavits. These arguments at best could establish some irregularities, for
which the Revenue might have had a perfect or plausible explanation, if
made in time. However, even if accepted at face value, such facts cannot
undermine the search, the recoveries effected or in any case and the validity
of the block assessments. The assessee/Ashok Chawlas submissions in this
regard are therefore, rejected.

ITA 478/2007 & connected matters                                       Page 22 of 62
Second question: Did the ITAT fall into error in concluding that there was
no infirmity in the framing of the assessment by an officer who was involved
in the search and seizure operations

32.     The assessees argument on this aspect is that Mr. D. Roychowdhary,
who was a party to the search and seizure proceeding, was also tasked or
authorized to complete the assessment. This, in the assessees submission,
displayed a conflict and also resulted in a bias which vitiated the assessment
order itself. The Revenue resisted this argument, successfully, and placed
reliance on the ruling of the Supreme Court in Union of India v Vipin Kumar
Jain 260 ITR 1 (SC). In that case, an argument identical with the one
advanced by the appellant/assessee here was accepted by the High Court.
The Revenues appeal was allowed by the Supreme Court, which observed,
in its judgment as follows:
        "6. In our view, this appeal must be allowed. The several
        sections which have been cited by the appellants would show
        that the Assessing Officer has, either directly or by virtue of his
        appointment or authorisation by a superior authority under the
        Act, been given the power of gathering information for the
        purposes of assessment. The mode of gathering such
        information may vary from the mere issuance of a notice under
        Section 142 to the more intrusive method of entry and search
        envisaged under Section 133A and 133B and seizure
        under Section 132. The appellants are also correct in their
        submission that in the absence of any challenge to any of these
        provisions, it was not open to the High Court to have disabled
        the Assessing Officer from discharging his statutory functions.
        What the High Court has done is to read limitations into the Act
        and to qualify the jurisdiction of the Assessing Officer and the
        powers of the authorities empowered to appoint the Assessing
        Officer as an authorised officer under Section 132 without any
        foundation for such conclusion being laid in any manner
        whatsoever by the writ petitioners.

ITA 478/2007 & connected matters                                       Page 23 of 62
        7.      Apart from the absence of any challenge to the provisions
        of the Act relating to the jurisdiction of the Assessing Officer to
        carry out the search under Section 132 subject to his being
        appointed as an authorised officer thereunder, we are of the
        view that there is no question of imputing or presuming a bias
        where action is followed under the section. The Assessing
        Officer is required to assess the income on the basis of facts as
        found. Such finding may be through any of the provisions
        referred to above. The only limitation on his drawing a
        conclusion from the facts as found is the requirement of
        allowing the assessee an opportunity of explaining the material.
        Even though it could be said that in a sense since the Assessing
        Officer was acting on behalf of the Revenue, in discharging the
        functions as an Assessing Officer, he was a party to the dispute,
        nevertheless there is no presumption of bias in such a situation.
        As said in H.C. Narayanappa v State of Mysore:
        "It is also true that the Government on whom the duty to decide
        the dispute rests, is substantially a party to the dispute but if the
        Government or the authority to whom the power is delegated
        acts judicially in approving or modifying the scheme, the
        approval or modification is not open to challenge on a
        presumption of bias. The Minister or the officer of the
        Government who is invested with the power to hear objections
        to the scheme is acting in his official capacity and unless there
        is reliable evidence to show that he is biased, his decision will
        not be liable to be called in question, merely because he is a
        limb of the Government."
        8. There is nothing inherently unconstitutional in permitting the
        Assessing Officer to gather the information and to assess the
        value of the information himself. The issue as to the
        constitutional validity of a provision which permitted an
        examining board not only to hold an inquiry but also to take
        action against doctors was raised before the Supreme Court of
        United States in Harold Withrow v. Duane Larkin (43 L. Ed. 2d
        712). In negating the challenge the court said;

        "The contention that the combination of investigative and
        adjudicative functions necessarily creates an unconstitutional

ITA 478/2007 & connected matters                                         Page 24 of 62
        risk of bias in administrative adjudication has a much more
        difficult burden of persuasion to carry. It must overcome a
        presumption of honesty and integrity in those serving as
        adjudicators; and it must convince that, under a realistic
        appraisal of psychological tendencies and human weakness,
        conferring investigative and adjudicative powers on the same
        individual poses such a risk of actual bias or prejudgment that
        the practice must be forbidden if the guarantee of due process
        is to be adequately implemented."

        9. It is true that there may be cases where the outcome of the
        assessment may be influenced by the fact that the raiding
        Assessing Officer had himself in the course of the raid been
        witness to any incriminating material against the assessee. The
        Assessing Officer's decision on the basis of such material is not
        the final word in the matter. The assessment order is
        appealable under the provisions of the statute itself and
        ultimately by way of judicial review.
        10. Finally, the courts cannot read in limitations to the
        jurisdiction conferred by the statutes, in the absence of a
        challenge to the provision itself when the language of the Act
        clearly allows for an ostensible violation of the principles of
        natural justice including the principle that a person cannot be a
        judge in his own cause. In Union of India v Tulsiram Patel, in
        recognition of this principle this court held (page 1462 of AIR
        1985 SC):
        "Not only, therefore, can the principles of natural justice be
        modified but in exceptional cases they can even be excluded.
        There are well-defined exceptions to the nemo judex in causa
        sua rule as also to the audi alteram partem rule. The
        nemojudex in causa sua rule is subject to the doctrine of
        necessity and yields to it as pointed out by this court in J.
        Mohapatra & Co v State of Orissa ."
        11. Learned counsel also drew our attention to the fact that the
        assessments on the basis of material recovered under Section
        132 had to be completed within a period of limitation
        prescribed under Section 158 BE (1) (b). The last date for
        completion of the assessments in the present case was October

ITA 478/2007 & connected matters                                     Page 25 of 62
        31, 2000. The prayer of the respondents for transfer of the case
        from the Assessing Officer on October 11, 2000, to a new
        Assessing Officer in the circumstances was unacceptable and
        the assessment by the said Harinder Kumar was unavoidable
        given the limited period left for completing the assessment
        proceedings. The High Court has observed that this plea had
        not been raised by the appellant. Perhaps the appellants are
        correct in submitting that the fact speaks for itself. However, it
        is not necessary for us to give any final view in the matter
        having held that the sections in the Act impose no limitation on
        the Assessing Officer on the authorised officer being the same
        person and that it could not be said that action taken pursuant
        to such statutory empowerment was coloured, only by reason
        thereof, by any bias.
        12. Ultimately, the question of bias will have to be decided on
        the facts of each case. If the assessee is able to establish that
        the Assessing Officer was in fact biased in the sense that he was
        involved or interested in his personal capacity in the outcome
        of the assessment or the procedure for assessment, no doubt, it
        would be a good ground for setting aside the assessment order.
        But to hold, as the High Court has that bias is established only
        because the authorised officer under Section 132 and the
        Assessing Officer are the same person is, in our view, an
        incorrect approach."

33.     The assessee has, in addition to relying on the circumstance that the
AO was a participant in the raiding party, not placed any other material to
substantiate the allegation of bias. No personal bias or malice or past history
with the said official was alleged, much less proved. In the circumstances,
the ratio in Vipin Kumar Jain (supra) applies. The argument that the
assessment was void on account of bias, therefore, fails and is rejected.

Third question- Whether the appellant, Ashok Chawla was given sufficient
opportunity during the assessment proceedings

ITA 478/2007 & connected matters                                      Page 26 of 62
34.     The appellant/assessee alleges that he was denied opportunity to make
effective submissions, inasmuch as he was not given copies of documents
despite repeated requests in that regard. He has placed on the record copies
of four such letters written to Commissioners and even to the Minister of
Finance, voicing his grievances in this regard. The Revenue argues that this
ground was never taken at the earliest point of time, nor even urged before
the ITAT. It claims that the submission with respect to denial of inspection
and opportunity is an afterthought, because no serious ground is urged in the
main appeal, ITA 495/2007. It is only urged in one inconspicuous ground in
W.P.(C)4299/2007. Counsel also points out that in the first writ petition
W.P.(C)1518/1997, the ground relating to denial of natural justice by
denying inspection of seized material was never taken.
35.     This court is of opinion that the allegations with respect to denial of
opportunity which resulted in depriving proper defense to Ashok Chawla are
unfounded. At the earliest point of time when he did approach the court, in
1997 (after the assessment order) there was no ground to this effect (in
W.P.(C) 1518/1997). Furthermore, even more significantly no such
complaint was made before the ITAT nor such ground urged. Even in the
appeal before this court, i.e ITA 495/2007, the appellant has not made out a
grievance that such a plea was taken but not considered by the ITAT. These
aspects apart, the court notices that the assessee was aware as to the nature of
the documents seized. If he did want a copy or had been unjustifiably denied
inspection, he had the means and resources to approach this court at the
earliest opportunity- he clearly did not. All these rule out the possibility of
denial of meaningful opportunity. This plea is consequently rejected.

ITA 478/2007 & connected matters                                     Page 27 of 62
Fourth question: Whether the additions sustained by the ITAT are justified
or are unreasonable or perverse.

36.     The additions made by AO were sustained partly by the ITAT and
partly set aside. The assessee, Ashok Chawla was granted some relief. In the
present set of appeals and writ petitions, learned senior counsel for Ashok
Chawla urged certain broad submissions, with respect to the additions made.
This court proposes to deal with each one of them.
37.     Learned senior counsel argued assailing additions made with respect
to the Swiss Bank account in the Discount Bank, the purchase of helicopters,
commission received in defense contracts and additions on account of
substantial investments in immovable properties. Learned senior counsel
argued that the authorities below, i.e. the AO and the Tribunal overlooked
the materials placed on the record which amounted to reasonable
explanation. First commenting upon the concurrent findings that Capitex was
none other than the assessee's concern, counsel relied upon a letter of 18 th
January 1994 which disclosed that he was authorized by Capitex to carry out
negotiations on its behalf. Learned counsel also relied upon the letter of 14th
August 1995 in terms of which Capitex stated that payments were made by
it, a stand endorsed by Schweitzer U.S.A. Furthermore senior counsel relied
upon a letter of 24th November 1995 by Capitex addressed to the income tax
department in this regard. Lastly, learned counsel relied upon a letter of 16th
December 1996 written to the Commissioner which clarified all the aspects.
38.     Ms. Bansal stressed that the significance of these documents was
overlooked and instead the Revenue placed much emphasis on the letters and
copy of the telex recovered and seized from the assessee Ashok Chawla from
his premises. It was stated that the letters relied on by the Revenue were

ITA 478/2007 & connected matters                                    Page 28 of 62
more than adequately explained and the inference drawn was wholly
39.     The letter by Capitex was written to the Commissioner of Income tax,
on 16.12.1996; it stated, inter alia that:
        " M/s Capitex Limited Picton House, Wargrage Road, Twyford
        Berkshire RG1O 9NY, UK is a subsidiary company of M/s Inter
        Agraria BV Holland which is a Dutch Company of
        International repute and holds 66.5% of Shares of M/s Capitex
        Limited. The balance shares (%) is held by Mr. Alan Saltmer.
        Mr. Ashok Chawla does not hold any shares of this company in
        his name or in the name of any member of his family or his
        associates. Mr. Ashok Chawla has been only our consultant and

              We further state and affirm that the Swiss Bank Account
        No. 53745zv with Discount & Trust Company Ltd. Switzerland
        does not belong to Mr. Ashok Chawla and as already clarified
        and confirmed vide para 5 of our letter dated 24.11.95 referred
        to above the account belong to us.

              We also affirm and state that no transfer of US$ 40,000
        from our aforesaid account or any other account to National
        Westminster Bank PLC, LondonUK took place at any time and
        similarly no transfer of US$ 10,000 to Mr. Anuj Chawla took
        place at any time:
        Yours sincerely,

It was also submitted that Capitex had clearly stated, in its letter to the
Revenue, on 26th October 1995 (responding to the latter's letter dated 20th
October 1995 that

        "the payment for two Schweizer 300 C helicopters questioned in
        your letter were made by Capitex Ltd. and negotiations were
        carried out by Centaur Helicopter Services Pvt. Ltd., on behalf

ITA 478/2007 & connected matters                                   Page 29 of 62
        of Capitex Ltd., Schweizer company was instructed to provide a
        certificate of payment received from Capitex Ltd., and they
        have confirmed issuing such certificate."

It was urged, therefore, that the addition made based on the finding that
Capitex was none other than Ashok Chawla's concern and that it used
undisclosed foreign exchange for conducting business, was not warranted.
40.     It was argued that similarly, the same letter issued important
clarifications about the Sokol helicopters and other transactions such as the
one relating to bank guarantee. Counsel relied on the following extracts of
the said letter:
        "Para 4 : Negotiations for lease of a Sokol Helicopter from
        Poland has been carried out with A. Chawla for UJA on our
        behalf and payment accordingly made by us vide contract No.
        UIA 236.

        Para 5 : Mr. A. Chawla was authorized only once to remit
        1.5million USD for Mr. Rakesh Gupta of UIA from Ca. Am
        Bank of Canada for negotiations and advance payment of 3
        Fokkere 50 to be carried by Mr. Kevin Hajha of Capitex Ltd.
        and money was never received. Subsequently all his requests
        for authorization of any bank guarantee including one for Mr.
        lnderjit Singh was denied.

        Para 6 : Centaur Impex is the production unit of our subsidiary
        leather garment Unit Alderman and regular export shipments
        are made according to which payment is made in advance and
        on shipments. The details may be obtained from Mr. Patrick
        Kerr. Mr. Anuj Chawla, son of Mr. A. Chawla had deposited
        his earning with us while in USA for transfer to India which
        was done accordingly.

        Para. 7 : Consultancy for remittance has been made to Canara
        Bank, New Delhi and no other remittance has been made

ITA 478/2007 & connected matters                                   Page 30 of 62
        anywhere else. You may obtain the details from Canara Bank,
        New Delhi."

41.     Learned counsel for the Revenue on the other hand argued that Para
7.10 of the ITAT's impugned order specifically deals with all these aspects.
It was highlighted that the tribunal took note of all the letters relied upon by
the assessee, in this appeal. It was submitted that even though Capitex wrote
some letters to the Revenue, it did not disclose all the materials or other
significant information as to the details of shareholders and the source of
funds of the company but withheld them. Details as to whether the assessee
was a shareholder or a functionary or an investor in Capitex was largely left
42.     On the other hand, submitted counsel for the Revenue, the letters
recovered showed decisively that the assessee was in control; he placed
orders. The letter by Rocky. G. Peters and the treasurer of Schweizer clearly
show that the amounts were paid by Ashok Chawla. Besides, if indeed the
deal or contract was between Schweizer the seller and Capitex, the
purchaser, nothing prevented the assessee from securing copies of the
contract, payment remittance details, etc as that would have supported his
stand. Capitex could well have provided this information which would have
proved decisive. It is pointed out that two letters: the first dated 3 rd January,
1995 from Schweizer and the other by the assessee, clinch the matter beyond
any controversy. Counsel for the Revenue relied on the extracts of the said
two letters. The first- dated 3rd January 1995, from Schweizer to Ashok
Chawla, reads inter alia, as follows:
        "W sold you a Schweizer Aircraft Model 300C Helicopter on
        September 20, 1994, for $196,166.10 pursuant to your
        purchase order. There have been no written amendments to that

ITA 478/2007 & connected matters                                       Page 31 of 62
        purchase order, nor any oral understanding different from the
        purchase order. At your request.we are holding the Schweizer
        300C Helicopter at your risk on our premises and title has
        passed to you. You have asked us to delay shipment of the 300C
        Helicopter so that it may be shipped during 1995.
        The product has been sold to you on our normal payment terms
        set forth in our invoice 9477928-AC dated September 2, 1994
        and there have been no modifications of those terms. The above
        aircraft has been paid in full."

The other letter, by the assessee, a copy of which was seized, dated 30 th
August, 1994, reads as follows:
        "Also please note that the balance of the money due to you for
        both Choppers will be sent between 5" to 9 September. The
        delay is purely administrative as import licence has not been
        sanctioned which is a customary red tapism, in the Indian
        Government channel. Therefore, we may have to change the
        invoice to UNITED AIRLINES INDIA PVT LTD. who have
        finally joined hands with me to run an 4 Taxi Service. You had
        met the gentleman who wanted complete first c/ass sealing
        which now I have made it to 50% business and 50% economy.
        Also a provision will have to Be made to show the source of
        funds for these Helicopters, which I. am claiming that these
        Helicopters are being brought on lease and therefore quarterly
        payments have to be repaid to you through the lease charges till
        the full payment along with interest of 7% has been made."

43.     The ITAT's findings in this regard are detailed and the relevant parts
thereof are extracted below:
        "The assessee has explained that the account number 53745eZV
        with Discount Bank, Switzerland, which was found written on a
        slip. of paper recovered from the premises of the assessee,
        belonged to MIs. Capitex of which the assessee was only a
        consultant. This plea is not supported by the nature of
        documents seized. The Swiss Bank accounts are highly
        confidential and no one will give the account number to a

ITA 478/2007 & connected matters                                    Page 32 of 62
        consultant. Moreover, the assessee was found in regular touch
        with the Vice President of the Swiss Bank as was clear from the
        telephone bills seized. Visiting card of the Vice President was
        also found from the premises of the assessee. A written
        instruction signed by the assessee to the bank was also found
        asking the bank to issue bank guarantee in relation to the said
        account. A letter asking the bank to transfer funds from the said
        account to some other accounts was also found. These have
        been reproduced in paras 7.3 and 7.4 earlier. Such instructions
        can be issued only by an owner. The claim that the bank
        guarantee had been issued as per authorization by someone
        else is not convincing as seized material do not give any such
        indication. Further, why someone should authorize the
        assessee, who was not even an employee, to issue bank
        guarantee in relation to his account. The claim that these
        documents were planted by the search party, has already been
        rejected by us vide para5.3.5 earlier. It Is also pertinent to note
        that though several documents were found suggesting that the
        assessee was the owner of the account, no material or
        correspondence was found showing linkage of account with
        Capitex nor any document showing authorization from Capitex
        to issue bank guarantee, was found. In case, the account
        belonged to
        someone else, the assessee could have easily established the
        same by producing. bank documents or letters from the bank.
        But no such evidence has been produced. Further, a last ,,will
        dated 15.5.1995 signed by the assessee was also recovered
        during search in which the assessee d clearly mentioned that
        ,,any fixed/movable assets abroad should automatically be
        passed on to my son Anuj Chawla, the list of which is known
        only to my son. The explanation of the assessee that this was
        only draft ,,will and the intention was that in case any
        fixe&movib1e asset is acquired by the assessee abroad in
        future, the list will be known to his son is not convincing as the
        ,,will was duly signed and language used in the ,,will clearly
        shows that on the day of signing the ,,will, the assessee was
        definitely having some fixed/movable asset abroad which was
        known only to his son. A copy of this wi1 has been reproduced

ITA 478/2007 & connected matters                                       Page 33 of 62
        latter in para 20.7. 1 . Considering the entirety of facts and
        circumstances such as recovery of Swiss Bank account number,
        the manners in which written instructions were given to the
        bank to issue bank guarantee charging the said account, the
        Will mentioned above and other material on record mentioned
        earlier, it will be quite reasonable to conclude that the account
        either belonged to the assessee or the assessee was the
        beneficial owner of the account. An agent of the account holder
        could not deal with the
        account in the manner noted above.
        7. 11 The assessee has also explained that two Schweizer
        helicopters had been purchased on behalf of Capitex who had
        made the payment of Rs. 11572668/- But the documents seized
        which have been mentioned in paras 7.6 to 7.8 earlier do not
        support the claim. The seized letter dated 31.8.94 written by
        Rocky G Peter of Schweizer USA mentioned in para 7.6 clearly
        shows that the helicopters had been sold to Centaur Helicopter
        Services, a group concern of the assessee. The letter dated
        3.1.1995 from the treasurer of Schweizer Aircraft Corpn.
        mentioned in para 7.7 earlier also confirms this. In the said
        letter, it was clearly mentioned that the helicopters had been
        sold to the assessee. Further the letter dated 30.8. 1994 from
        the assessee addressed to Paul Schweizer/Rocky Peter of
        Schweizer Aircraft Corpn. mentioned in para 7.8 clearly
        mentioned that the payment will be made between 5-9 Sept
        1994. Ii was also mentioned that invoice may have to be
        changed to United Airlines India Pvt. Ltd.
        The assessee in the said letter further showed his concern as to
        how transaction of sale should be reflected as a lease to show
        the source of
        fund for these helicopters and wanted to show it as quarterly
        payments to be repaid through the lease charges till the full
        payment along with interest 7% had been made. The language
        of the aforesaid letters clearly shows that the helicopters had
        been ordered and purchased by the assessee for himself for his
        companies fully controlled by him.
        It also shows that it was the assessee who had arranged the
        funds because one of the letters talks of changing the invoice

ITA 478/2007 & connected matters                                     Page 34 of 62
        from one name to another depending upon the convenience of
        the assessee. it also talks of provision to be made to show the
        source of funding as the assessee was claiming the helicopters
        to have been bought on lease. Such language can be written
        only by the buyer concerne4: with the source of funds etc. and
        not the consultant. Further, in case, the helicopters: had been
        bought on behalf of someone else, how the assessee could write
        that the invoice had to be changed lathe name of some other
        Indian company or that he was claiming that these helicopters
        were being bought on lease. The assessee thus was exercising
        complete control over the property."

44.     This court is of the opinion that the ITAT's finding besides being
factual and concurrent, are sound given the materials on record. The assessee
had relied upon replies given to the Revenue on five points by Capitex, in its
letter of 26th October 1995. The Revenue's letter addressed by the assessing
officer (20.10.1995) sought details on firstly whether Centaur helicopters had
purchased two helicopters on behalf of M/s. Capitex for which US$ 401595/-
was paid and if so who paid it. Documents such as auditors' certified copy,
certified copy of bank statements giving details of the payments; and details
of total payments made along with the relevant dates of payment were
sought. The letter further sought information with regard to leasing of Sokol
helicopters and the contract which had confirmed that Capitex had
transferred US$166,002 to Wisik regarding the lease of one Sokol helicopter.
Certified copies from the auditors of Capitex of the balance sheet and the
bank statements were also sought. The last information sought was with
respect to the account concerning the Discount Bank and the request for
bank guarantee issued to the tune of $100,000. The remittances to Mr. Anuj
Chawla and Centaur helicopters as well as Centaur Impex (P) Ltd were also
sought. The reply given by Capitex on 26th of October 1995, no doubt

ITA 478/2007 & connected matters                                    Page 35 of 62
discloses some information. For instance it states that the payment for the
two 300C helicopters were made by it and that negotiations were carried out
by Centaur on its behalf. Significantly, however, in reply to the pointed
query whether Capitex paid the amount, the letter stated that should
Schweizer Company USA" was instructed to provide a certificate of
payment received from Capitex limited and they have confirmed issuing such
45. This guarded clarification in fact begs the question. The pointed query was whether Capitex made the payment and if so the details of such payments. Capitex in its reply was forthright that the two Schweizer helicopters were purchased on its behalf. Yet inexplicably it refused to provide details of bank account statements and audited statements. These gaps in the opinion of the Court justified the Revenue to conclude- on the basis of the other letters which painted a contrary picture - that Capitex was controlled by Ashok Chawla. The other letters were written by Rocky.G. Peters of Schweizer and the treasurer of Schweizer USA stated that the helicopters were ordered or purchased by the assessee, Ashok Chawla. As far as the Sokol helicopter details are concerned, the letter dated 26th October 1995 states that negotiations were carried out with Ashok Chawla acting for United Airlines or on their behalf and payment was made by Capitex. The letter also went on to state that Mr. Chawla was authorized only once to remit US$ 1.5 million "for Mr. Rakesh Gupta of UIA from Ca. Am Bank of Canada for negotiations and advance payment of 3 Fokkere 50" which was to be carried out by Capitex. The letter stated that the money was never received. An identical letter was given on 24.11.1995. In addition to the details previously provided, Capitex clarified that the consultancy fee paid ITA 478/2007 & connected matters Page 36 of 62 was GBP £2500 and no amount over and above that was ever paid on a quarterly basis. The other material was a letter addressed to the Commissioner of Income tax by Mr. Allen Saltman, on 16th December 1996. It stated that Capitex was the subsidiary of one Inter Agra BV Holland a Dutch company and held 66.5% shares in Capitex. Allen Saltman held the balance shares. The letter stated that Ashok Chawla did not have any shareholding and clarified that no transfer to the tune of US $ 40,000 from Capitex from a Swiss account or any other account was made to National Westminster Bank PLC and that no transfer of US $10,000 was made to Ankur Chawla. 46. During the hearings, the counsel for Ashok Chawla had relied on an order dated 31.12.2013 of the Joint Director, Enforcement, (pursuant to notice issued to him and Centaur, dated 24.4.2002). The notice issued was under Sections 49 (3) (4) and (5) (a) of the Foreign Exchange Management Act, 1999. The order discharged the notice. The relevant parts of the order are extracted below: "3.1 The case was heard by the undersigned on 06.12.2013 when Sh. Pramod Shankar Tiwari, Advocate appeared on behalf of the notices. During the personal hearing, the Advocate submitted that written submissions which were filed on 06.06.2006 in response to the Memorandum, were again filed along with their letter dated 09.09.2013. He requested to drop the proceedings on the ground that no transfer of money to USA ever took place, neither any helicopter ever imported into India on behalf of the noticees. 3.2 On perusal of their reply dated 6.6.2006, submitted during personal hearing before me, it is found that the same appears to have been filed in response to Memorandum no.T- 4/30-D/96/SCN-II dated 24.4.2002 & T-4/30-D/96/SCN dated ITA 478/2007 & connected matters Page 37 of 62 11.12.96 and not in the matter of present Memorandum, though, in the facts and circumstances of the case and after going through the copies of documents furnished along with the said reply, I find that these are also relevant to the proceedings in the present Memorandum. 3.3 It is inter-alia submitted that the noticees have been framed by conspiracy by the Income Tax Deptt. through one Mr. Rakesh Gupta, a front man; that the statements of the notice recorded by the Enforcement Directorate were forcibly taken by the Department under duress, threat and intimidation which were withdrawn through an application, moved within 3 days . With regard to allegations in the Memorandum, that two Schweizaer Helicopters were allegedly bought by Sh. Ashok Chawla, the noticee for USD 401596, it is contended that the said payment was made by M/s Capitex Ltd. for leasing to United India Airways Ltd.; that the helicopters never came to India and at no time payment was made by the notice, who had negotiated on behalf of M/s Capitex Ltd., for the two helicopters; that the notice had been acting as a consultant to M/s Capitex Ltd., UK and was authorized to carry out all the negotiations on behalf of M/s Capitex Ltd. for purchase of the said two Helicopters which were to be leased to United India Airways Ltd. 3.4 The copies of the following documents have been furnished along with the reply: i) Letter dated 18.01.1994 from Capitex, UK to M/s Schweizer Air Craft Corporation , USA authorizing Sh. Ashok Chawla to negotiate on behalf of Capitex for purchase of Helicopter, ii) Letter dated 14.08.1995 from Capitex, UK to M/s Centaur Helicopter Services Pvt. Ltd. confirming purchase of Helicopters and regarding its shipment on lease to M/s Centaur Helicopter Services Pvt. Ltd. ITA 478/2007 & connected matters Page 38 of 62 (iii) A confirmation dated 15.09.1995 from M/s Schweizer Air Craft Corporation, USA as Capitex, UK having purchased the two Helicopters from them for which Sh. Ashok Chawla of M/s Centaur Helicopter Services Pvt. Ltd., carried out all negotiations on behalf of M/s Capitex, UK and (iv) Letter dated 02.11.95 from Capitex, UK to M/s Schweizer Air Craft Corporation, USA requesting them to sell of the helicopters to some buyer as the same were not likely to be leased to an Indian company. 4. Findings and order 4.1 I have carefully gone through the case material available on record and also the defence reply filed along with documents mentioned above. I find that the said documents furnished by the noticees, prima facie show that Sh. Ashok Chawla of M/s Centaur Helicopter Services Pvt. Ltd., acted as representative for and on behalf of M/s Capitex, UK, who carried out negotiations relating to purchase of two Schweizer helicopters from M/s Schweizer Air Craft Corporation, USA by M/s Capitex Ltd., UK, who made the payment for the purchase of the choppers. These documents further show that after purchase, the said helicopters were to be leased out to M/s Centaur Helicopter Services Pvt. Ltd. for their operations in India, which eventually didnt materialize and the import of the said choppers into India did not take place. 4.2 On the other hand, the documents relied upon in the Memorandum do not say that the helicopters in question were purchased by the noticees. The letter dated 10.10.95 from M/s Schweizer Air Craft Corporation, USA which is also relied in the Memorandum states that they had received the payment against two helicopters from M/s Capitex, UK. It does not mention anything about the noticees or that the above payment made to M/s Schweizer Air Craft Corporation, USA, was made on behalf of the Sh. Ashok Chawla or his company, the noticees in the present Memorandum. ITA 478/2007 & connected matters Page 39 of 62 4.3 In the light of the above facts, the allegations in the Memorandum that payment for purchase of the said choppers was made by M/s Capitex, UK on behalf of the noticees and that the noticees otherwise transferred foreign exchange to wit US$ 4,01,985.90 to M/s Schweizer Air Craft Corporation, USA against the said purchases in contravention of section 8 (1) & 9 (1) (c) of FERA, 1973 (46) of 1973 is not established. 4.4 Accordingly, I drop the charges against both the noticees." Learned counsel argued that the above order had the effect of exonerating Centaur and Ashok Chawla of any wrongdoing in respect of the helicopter deal. The order, said counsel is premised on the finding that Centaur had not indulged in unauthorized foreign exchange transactions. 47. A careful reading of the Enforcement Directorate's order would show that the notice was premised on violation of Section 49. That provision preserved the authority of the competent officers to initiate action under the provisions of the old and repealed law, i.e the Foreign Exchange Regulation Act, 1974. Facially, the order of the Jt. Director does not disclose which provision of the previous law had been infringed. Besides, more importantly, the focus of inquiry in search assessment which the assessee was subjected to under block assessment, was based upon materials recovered during the search and seizure proceedings. Those materials, especially the letters addressed by Schweitzer Corporation USA and the tone and tenor of the letters issued by or written by Ashok Chawla had not been considered in the Enforcement proceedings before the Joint Director. Consequently, the order of the Enforcement Directorate is of little relevance in proceedings ITA 478/2007 & connected matters Page 40 of 62 terminating or arising out of search and seizure assessment under the Income Tax Act. 48. As discussed earlier the reasonableness of the findings by the ITAT is the main issue here. Both the AO and the tribunal had rejected the assessee's explanation that he was not the de facto owner or principal shareholder having control over Capitex. To dispel the suspicion that the assessee had entered into a contract for the purchase of two Schweizer helicopters and the Sokol helicopter and was also responsible for the account in the Discount Bank as well as the two remittances therefrom, and furthermore that he had sufficient amounts to secure for the issuance of a bank guarantee to the tune of US $ 100,000, relied upon certain other letters. 49. Now the jurisdiction of this court is to examine whether in the given facts of the case, substantial questions of law arise and if so endeavor to answer them. Unless the tribunal's inferences drawn on the basis of the given facts, are so unreasonable or that the Tribunal overlooks material circumstances and facts and renders a finding contrary to the documents, the jurisdiction under Section 260A, does not arise. This court would have to keep these broad constraints that control its jurisdiction in mind while endeavoring to deal with the intensely factual nature of the issues urged. 50. Now as far as the explanation given through the letters said to have been initiated by Capitex are concerned, the Court notices that only one of them was directly received by the Revenue. The others were all furnished in the course of the assessment order and some even later during the appellate proceedings. Therefore, the origin of these letters is rather suspect. Secondly, and more importantly, these letters only clarify about past transactions. If indeed Capitex had entered into independent contracts for purchase or sale of ITA 478/2007 & connected matters Page 41 of 62 Schweitzer helicopters or the Sokol helicopters, nothing prevented that concern i.e. Capitex from furnishing copies of such contracts; nothing prevented it also from furnishing some details as to the remittances or payments made to the concerned banks, in order to purchase such equipment or in the case where such contracts were not actually performed, show how contracts were rescinded at and if any amounts were paid to the vendors etc. Besides the fact that the letters shown are post-search, the lack of any primary evidence, renders these clarifications suspect. They do not inspire confidence-at least, not enough to dispel the inference drawn by the Revenue, based primarily upon the material seized during the course of the search and seizure proceedings. 51. What is significant is that Shri Ashok Chawla knew the Discount Bank particulars; he even had several telephonic conversations with the Vice President of that Swiss bank. If indeed the assessee Ashok Chawla were only a consultant - not even an agent, the question as to his knowledge about his principal's accounts and his familiarity with the Bank of the principal, would never arise. Besides, how Ashok Chawla had the ability to operate the accounts is also a mystery. If this are kept in mind while reading the letters of Rocky. G. Peters and the later letter of 30th of August 1994 written by him to the treasurer of Schweitzer Corporation, (which had previously notified that the helicopters had been paid for and that the title had vested in him), the suspicion which the Revenue harbored initially, based upon probabilities, can be the basis for a finding that these transactions were at his behest and he was the controlling force or voice in Capitex. As a consequence, this court holds that there is no infirmity in the Tribunal's findings on these aspects. ITA 478/2007 & connected matters Page 42 of 62 52. Ashok Chawla was examined under Section 131 of the Income tax Act, 1961 by the investigation wing on 11.10.1995, and asked to give details of all the immovable properties owned by him in India and abroad either himself or in the name of wife, son or otherwise financed or in other capacity, money invested by him for the purchase of land and/or construction or renovation etc. In response he denied having made any investment in any construction or property abroad. He, however, gave details of properties owned by him in India as follows: i) B9, Saket, New DeIhi. ii) 198, Sector 21 A, Faridabad iii) Agricultural land measuring about one acre in NOIDA UP iv) One SFS flat in Vasant Kunj, New Delhi v) D1/24, Vasant Vihar New Delhi vi) 40/98, Chitranjan Park, New Delhi. vii) 2 acres of land in Gopal Hari, near Gurgaon. A last Will dated 15.05.1995 was found from Ashok Chawla's premises in which he had willed his fixed/movable assets to different persons. The will is extracted below: "This is to state that I ASHOK KUMAR CHAWLA, S/O SHRI PRITHJVI RAJ CHAWLA sound in mind and body, solemnly declare that this is my final and last will which may be followed up to the last word, in case something happens to me. . The executor of my Will shall be Mr. ARUN ARORA of E-44; Panchseel Enclave, New Delhi. All my movable and immovable properties is to be handed over my son ANUJ CHAWLA, sound in mind and body, solemnly along with my locker keys. However, out of my cash holdings and assets the distribution is to be made as mentioned below: ITA 478/2007 & connected matters Page 43 of 62 The properties already in the name of my wife Mrs. ANU CHAWLA to continue, which have been totally paid up by me. These properties are namely : a) House -198 Sector 2-A, Faridabad b) Flat No.4316, Pocket B4, Vasant Kunj, New Delhi c) Farmland in NOIDA She may at her own discretion pass anything she likes to our daughter ANISHA CHAWLA From the cash assets the following distribution to be made: A .Miss VIJAYA RAJ GOPAL - Rs10,00,000/- (Rupees Ten Lakhs) 2 MRS. BHAGYATI SIBBAL- Rs. 700,000/- (Rupees Seven Lakhs) . . 3. MISS PRAJANA KAPOOR Rs.5,00,000/ (Rupees Five Lakhs) All the Male Staff to be given Rs.25000 (Rupees Twenty Five Thousand) each, which are as under: 2 Drivers 5 Servants in the Office E-6, Anand Niketan, New Delhi.. 1 Servant at Faridabad house 2 Servants at B-9, Saket New Delhi. Any Fixed/Movable assets abroad should automatically be passed on to my son ANU CHAWLA, the list of which is known only to my son. Any enquiry/objection from any member of my family shall be sorted out by the Executor of my will, MR. ARUN ARORA and his decision would be final. sd/ ASHOK CHAWLA Witness: .... 1. Vasant Kunj property to be given to Madhu Talwar, my sister, 2. Both children of Vijay to be given Rs. 5 lacs cash by ANUJ my son." 53. The Tribunal noted that Anuj Chawla owned the Saket, Faridabad and Vasant Vihar properties; that the property at E-34, Greater Kailash I was owned by Vijaya Rajagopal; that of E-6 Anand Niketan was owned by Mr. ITA 478/2007 & connected matters Page 44 of 62 Zal Akhtar; the farmland at Gwalpahari and 199/21A Faridabad was owned by Ms. Asha Jain and that Ashok Chawla owned 40/98 CR Park. Besides, it took into account the London property and said that it was in Ashok Chawla's possession. The tribunal thereafter found as follows: "We have separately considered additions (i) to (v) above. But we are convinced that above additions alone will not be reasonable or sufficient to take stock of unaccounted commission etc. earned by the assessee and, therefore, further addition of Rs.4,58,11,000/- is required o be made to make the assessment realistic having regard to the scale on which the activities were carried on by the assessee in the block period. The objection of the Id AR in regard to the additions: were that it was made purely on estimate. The id AR has also pointed out that the A.O. had not considered the valuation made by the registered valuer which supported the investment declared in the various block returns. These arguments are not found convincing. The investments in these properties were detected only during the course of search and these properties were not accounted for. in the block assessment, addition can be made on the basis of material found during search. In this case, material found during search, clearly showed unaccounted i investments in properties. Therefore, addition in relation to these properties in the block assessment is quite justified and for quantifying the addition, the value of actual investment has to be found out for which valuation of the unaccounted properties is necessary. Therefore the addition on the basis of valuation report in the Facts of the case will be within the provisions of law. Registered valuer has only supported whatever the assessee disclosed in the block return. During the course of hearing, he id counsel for the assessee was unable to show that reports of registered valuer are based on relevant data; nor any specific defects were brought to our notice in the valuations made by the V.0. The valuation of the registered valuer therefore, cannot be taken as reliable considering the common practice of large ITA 478/2007 & connected matters Page 45 of 62 scale underinvestment in immovable properties. As for the name in which the excess investment found on valuation of immovable properties should be assessed, we have already held earlier that on the facts of the case such excess investment has been rightly considered in the name of the assessee. Further, we are not sustaining the above addition merely on the basis of valuation of V.. There are other circumstances discussed herein to justify the assessment of amount of commission earned by the assessee and invested in various properties." 54. Counsel for the appellant argued that the additions made and sustained by the tribunal cannot be upheld utterly without legal foundation. It was argued that the owners of the properties were different. In at least 3 cases the owners were not family members. Two of them, i.e. Zal Akhtar and Asha Jain had sent written confirmations about ownership; they were also non- residents living in the USA. Additions made on account of these three properties were therefore conjectural and entirely based upon the report of the DVO. Learned Senior counsel argued next that as far as the property owned by the appellant and his company, Centaur, are concerned, the tribunal ignored and overlooked the circumstance that the original acquisition cost had been declared in the previous returns. In the case of the C.R Park property, even the detailed record of expenditure incurred in constructing the building was available. All these were ignored and the valuer's report was preferred. Urging this court to overturn and set aside these findings, counsel stressed that the rationale for referring this issue to the valuer was the assumption that substantial amounts were earned but not declared during the block which had been invested in these properties. 55. Counsel for the Revenue argued that the findings with respect to valuation of properties and the additions made, should not be interfered with. ITA 478/2007 & connected matters Page 46 of 62 He relied upon the observations of the tribunal that Sh. Ashok Chawla was actively involved in major defense deals and was party to detailed procurement plans, under the heading "modernizing army" a document found from his premises. This document contained an assurance by the appellant guaranteeing payment of US $120,000 in the event a particular contract did not materialize though the guarantee was given on the letterhead of a group company, such an assurance was clearly given in his personal capacity. This disclosed the scale at which he operated. Expenses relating to office maintenance at Moscow too were found. Moreover his ability to maintain a Swiss bank account and operate it also stood established. Although full details of such accounts could not be obtained on account of stringent secrecy laws in Switzerland, the assessee did not clarify this position nor clear the air. His statement made in the course of the proceedings admitted that he had invested substantial amounts to its acquisition of properties. This investment of unaccounted wealth was to the tune of `1.43 crores. The total value of these properties was assessed by the DVO at `6 crores. 56. This court has examined the orders of the AO and the ITAT. It is apparent that both these authorities disregarded the returns and the values disclosed in those returns by the owners, and rather presumptively added amounts towards what according to them were the true value of the properties, in line with the report of the DVO. This court is of opinion that such an approach defies logic and is manifestly erroneous. Notices were separately issued to Ms. Anu Chawla, Mr. Anuj Chawla and the other owners of the properties which were subjected to fresh valuation. Returns were filed by those parties. These returns disclosed the value (which in some ITA 478/2007 & connected matters Page 47 of 62 cases, like in the case of Anuj Chawla and Anu Chawla) were over and above the cost disclosed in the returns. The AO partly accepted the additional value declared by these third parties/ relatives, but also at the same time - entirely based on the DVO's valuation, added some more. This approach is erroneous, because on the one hand, the higher value of the owner is accepted, only to be loaded with a further amount. The entire additional value (i.e the extra value disclosed in the block returns by the owner plus the further additional value, determined by the DVO) was brought to tax in Ashok Chawla's hands. This approach can be demonstrated by illustration. D1/24, Vasant Vihar, New Delhi was valued by the DVO as `42,90,590/-. The property stood in the name of Anuj Chawla, the son of the assessee who had declared `18.83 lakhs as the total investment in his return of undisclosed income. The excess of the declared value i.e. `24,07,000/- along with brokerage of 2% i.e. `85,810/- totaling `24,92,810/- was added by the assessee as undisclosed income of the assessee on substantive basis and addition of `24,97,000/- was also added on protective basis in case of Anuj Chawla. Likewise, over `23 lakh was added to the assessee/Ashok Chawla, solely on the basis of the DVO's report. 57. This court is of the opinion that the findings of the ITAT in this regard are unsupportable in law. During the course of assessment proceedings, the assessee, Ashok Chawla, in answer to queries, had on 27 th August, 1996 and 6th September, 1996 pointedly and clearly stated that the properties that were not in his name were not acquired by him. Yet, on the basis that the assessee must have earned substantial income which was not declared, both the AO and the ITAT embarked upon the venture of revaluation of the properties that did not belong to him and concluded that the difference between the ITA 478/2007 & connected matters Page 48 of 62 transaction value reflected in the documents and the higher value determined was the sum total of his undisclosed income. This clearly betrays a contradictory approach; worse, in some cases, additions were made and confirmed in the hands of the owner and the assessee, Ashok Chawla, was subjected to protective assessment; in cases of others, such as Asha Jain and Zal Akhtar, the additions were made to his returns. Furthermore, in respect of one property, i.e., the Anand Niketan premises, the documents showed that the assessee Ashok Chawla was only a power of attorney holder and had not paid the entire consideration. Yet, the AO concluded that he must have paid the entire consideration. 58. However, as far as the addition of `1.50 crores made in respect of the London property is concerned, stands on a different footing. The search and seizure had yielded documents pertaining to the London flat. The explanation given by the assessee Ashok Chawla cannot be accepted. The position taken by him was that the property was rented. If so, the question of paying maintenance, and the bills found in his possession, remained unexplained. Furthermore, the documents seized also showed that insurance amounts were being paid. 59. As the assessee did not disclose the true value of this property, the ad- hoc valuation at ` 1.5 crores cannot be faulted. 60. The court notices that the ITAT had also given relief to the extent of restoring the addition to the extent of `25 lakhs to the AO for further inquiry and findings. Also, it deleted an addition made by the AO to the tune of `4 lakhs. No fault can be found with these. 61. After the ITAT made the impugned order, the assessee, Ashok Chawla, moved an application for rectification. This was partly allowed and ITA 478/2007 & connected matters Page 49 of 62 limited relief was given by the order dated 17th September 1996 to the extent of `13 lakhs which was directed to be deleted. Though this order has been challenged in W.P.(C) 3517/2011 no separate arguments were addressed why it is erroneous. In any case, the court has dealt with the merits of the main appeal. So no relief can be granted in this writ petition. 62. As a result of the above findings, the addition sustained by the ITAT (`7,37,30,266/-) has to undergo substantial change. The additions made on account of re-valuation of various properties (aggregating to `4,58,70,124/-) except `1,50,00,00/- have to be deleted. Therefore, the ITATs order is modified; the assessee is entitled to further relief to the extent of `3,08,70,124/- which has to be deleted from the sum of `7,37,30,266/-. The appeal (ITA 495/2007) partly succeeds to that extent. The ITAT had given relief in rectification proceedings to the extent of `13 lakhs. All these are to be taken into consideration by the AO, while giving appeal effect. W.P.(C) 4299/2007 is, however, for reasons mentioned in the earlier part of the judgment relating to the validity of the search, without merit. It is therefore dismissed. 63. The assessee/appellants grievance in W.P.(C) 7962/2009 is with respect to an order of the Commissioner of Income Tax under Section 220 of the Income Tax Act. Ashok Chawla had expressed, during the pendency of his appeals before the ITAT, inability and hardship to pay interest and sought its waiver. The CIT considered all the records and the facts pertaining to the stages of the proceedings, as well as the offer to liquidate some of the tax liability and held that exercise of discretion under Section 220 (2A) was not made out. The assessee argues that during the pendency of the present appeals and writ petitions, one of its properties has been sold and repeated ITA 478/2007 & connected matters Page 50 of 62 offers to settle tax liabilities were made and that this court should take all these into consideration. 64. This court has considered the submissions and materials on record. The materials and circumstances suggest that the assessee is in possession of adequate and substantial resources and could well have discharged his liabilities toward the Revenue. He chose not to do so; it is not as if in the event of his paying the tax liabilities and later succeeding, he would not have been restituted. Such restitution with interest is permissible; the law mandates it. In these circumstances, the discretion, exercised after considering all material facts, cannot be faulted as injudicious or arbitrary. For these reasons, the writ petition (W.P.(C) 7962/2009) fails and is dismissed. ITA No. 817/2007: Revenues appeal against the ITATs order 65. The ITAT had sustained the addition made by the AO, to the extent of ` 7,37,30,266/- and deleted an equivalent amount. The Revenue is in appeal against this part of the impugned order, contending that the said deletion is unreasoned. In this regard, the deletion to the extent of `4.42 crores (on account of the 15% commission assessed in the hands of Capitex) and further sums of `27.31 lakhs and `57.60 lakhs made by the AO on account of "upfront" money for pursuing the defense deal to the extent of UK £ 120,000. Counsel for the Revenue argued that these amounts should be sustained, and that the reasons given by the ITAT are without basis. 66. This court is of opinion that the main reason that impelled the ITAT to direct deletion of the substantial amount of `4.42 crores is found in Para ITA 478/2007 & connected matters Page 51 of 62 20.7.7. It cannot be said that these reasons are untenable. The amount was in fact on account of 15% commission, which the according to the AO was received by him. Likewise, the deletion of the two other amounts cannot be said to be unreasonable. For these reasons the court holds that the Revenues appeal, ITA 817/2007 is without merit. It is accordingly dismissed. 67. In IA 356/2017, the applicants, Lakhan Singh and Bhagat Singh, seek impleadment in W.P.(C) 4299/2007, filed by Ashok Chawla, contending that the attachment of properties, i.e farmlands should be vacated. They claim to be decree holders entitled to the said property and seek directions for release of the property in issue i.e. property No.7 being Farm Land at Village Gawal Pahari, Tehsil Sohna, Khewat No.109, Khata No.111, Rect. No. 39, Killa No.16/1(5-16) and V2 share in khewat No. 294, Khata No.308, Rect. No.39, Killa No. 16/2(2-4) share bearing 1 kanal 2 marla and khewat No. 295, Khata No. 309, Rect. No.39, Killa No. 25(8-0) measuring 14 kanals 18 marlas, total admeasuring 16 Kanal (2 acres) from attachment made by Income Tax Department. For this purpose, reliance is placed on the decree in suit filed by them for possession, passed by the Civil Judge, Gurgaon on 26.09.2016. The parties, i.e., Ashok Chawla and Revenues counsel as well as counsel for the applicant were heard. 68. This court is of opinion that the issue as to entitlement of one or the other party to possession, per se does not conclusively decide the question of title. Furthermore, and more importantly, the concerned officials of the Revenue made the attachment of the properties. Further, by virtue of Section 293 of the Income Tax Act, the subject matter of income tax proceedings cannot be also the subject matter of civil proceedings. This issue was considered by the Supreme Court in Commissioner of Income Tax, ITA 478/2007 & connected matters Page 52 of 62 Bhubaneswar and Anr. v. Parmeshwari Devi Sultania, (1998) 3 SCC 481. The Court was concerned with was partition of certain gold ornaments that had been the subject of search and seizure under Section 132. In deciding that the suit ­ in so far as it concerned the ownership of the gold ornaments ­ was barred, the Court noted at paragraph 9 as follows: "9. It (the High Court) failed to consider the effect of the decree if passed in the suit on the order under Section 132(5) of the Act or other proceedings under Section 132B of the Act. When Section 293 originally stood, it (sic) provided that "no suit shall be brought in any Civil Court to set aside or modify any assessment or order made under this Act". The word "assessment" was omitted and the words "proceeding taken" were inserted in its place. This made the section more comprehensive in nature. Direct effect of the decree in the suit would be that the gold ornaments, subject matter of this suit, would be taken out of the order of the Income Tax Officer under Section 132(5) of the Act and would not be available to be applied in proceedings under Section 132B of the Act..." It is therefore, held that this court cannot decide this issue in the assessees appeal and writ petitions. If the applicants claim to have any interest, they have to approach the concerned income tax authorities. IA 356/2017 and connected applications (IA 449/2017) are consequently dismissed. 69. In the light of the conclusions recorded above, ITA 495/2007 succeeds in part; ITA 817/2007, along with W.P.(C) 4299/2007, W.P.(C) 7962/2009 and W.P.(C) 3517/2011 have to fail. IA 356 & 449 of 2017 are also dismissed. Appeals in relation to Centaur Impex: ITA 479/2007 (assessee) & ITA 1246/2007 (revenue) ITA 478/2007 & connected matters Page 53 of 62 70. In relation to Centaur Impex, the assessee, pursuant to notice under Section 158BC, the AO made additions to the extent of `92,50,878/- as undisclosed income. This was based on the AOs determi nation of undisclosed income assessed on substantive basis due to unexplained credit in bank account for AY 1995-96 (`40,65,086/-) and unexplained credit entry in the Discount Bank & Trust Co, Zurich, assessed on substantive basis for AY 1995-95 @ `51,12,392/-. Upon the assessees appeal, the ITAT gave substantial relief, by deleting `40,65,086/-. The assessee is in appeal, complaining that the balance amount should have been deleted; the Revenues appeal is that the amount of `40,65,086/- should not have been deleted. 71. This court notices that the ITAT granted relief and deleted the sum of `40,65,086/- after analyzing the factual material to hold that there was documentary evidence in support of its contention that the amount was toward exports made (in relation to contract No.7613). The ITAT took into consideration fax messages and other communications to infer these circumstances. The Revenue argues that such material was insufficient to warrant the relief given. This court is of opinion that the ITAT applied its mind and considered the objective facts. There is no unreasonableness in its approach warranting an appellate review. Consequently, the Revenues appeal has to fail. 72. The assessee argues, in its appeal ITA 479/2007 that the amount of `51,12,392/-, a foreign remittance from the Discount Bank account, was mistakenly to its account and that it should have been paid into the account of Centaur Helicopter. Since the assessee did not have an RBI and IE code, it transferred the order to M/s. Kerr Enterprises, a concern of Mr. ITA 478/2007 & connected matters Page 54 of 62 Patrick Kerr, who was also its director. The exports were actually made during the next year. The Revenue, however, points out that the amount came from the account of Capitex and the explanation given by the assessee is unconvincing, as the said company had no concern with the transaction. 73. This court has considered the rival submissions. The ITATs findings are as follows: " The export had been made to ATTL Uk and therefore, the payments were required to be made by ATTL. Merely because Mr. Allen Saltmer was Director of both ATTL and Capitex and was interested in becoming director of Centaur Impex, is no ground for Capitex to make payment on behalf of ATTL. Moreover, no further evidence in the form of a certificate from auditors in case of ATTL or any other reliable evidence has been produced to show that in the books of ATTL, the said amount had been shown as a loan from Capitex. The plea that some export against the advance had been made in the subsequent year, is also not acceptable." It is evident that the tribunal considered the facts and circumstances relied upon by the assessee. The inferences drawn by it, whilst independently evaluating the submissions, cannot be termed unreasonable as to warrant interference under Section 260A of the Act. The assessees appeal, therefore, has to fail. 74. As a result of the above discussion, both appeals, ITA 479/2007 and ITA 1246/2007 have to fail. ITA 988/2007: Block assessment appeal by Centaur Helicopter Ltd 75. Centaur Helicopter is aggrieved by the order of ITAT dated 31.05.2007, which substantially upheld the AOs order in the block ITA 478/2007 & connected matters Page 55 of 62 assessment pursuant to Section 158BC of the Act. The AO had made additions under Section 158BC to the extent of `27,35,831/- for the block period added further sums of `12,00,000 (as undisclosed payments to BK Menon); additions towards commission and consultancy income not disclosed during the period to the extent of `1,71,05,675 and added unexplained expenditure under Section 69C to the tune of `23,73,590/-. The total amount thus brought to tax was `2,34,15,096/-. The assessees appeal to ITAT was partly allowed; the last amount of `23,73,590/- towards unexplained expenditure was deleted. 76. The assessee argues in its appeal, under Section 260A that the tribunal failed to consider important evidence, which pointed to the fact that it had not received any amounts apart from what, was given as a quarterly fee or retainer, i.e., GBP £ 2500 per quarter. The AO added amounts based purely on surmises drawn by him from the seizure of some loose papers which contained figures; amounts were also added, based on the UK Revenue intelligence report to which the assessee was not privy. It was argued that consequently, the inclusion of the sum of `1,71,05,675/- was not on any sound logic or reasoning, but an arbitrary exercise. The Revenue, on the other hand, argues that the ITATs decision is sound and sho uld not be interfered with as they are pure findings of fact. 77. The AO - and later, the ITAT, had carried out an elaborate, year by year analysis of the amounts that the assessee received - reflected in the books and documents seized, but not declared by it, in the returns or even block returns. These documents, which formed the basis of the block assessment, were A-9, A-10, A-11 and A-12. Details for every year were ITA 478/2007 & connected matters Page 56 of 62 discussed and a comparison made with respect to what was actually declared and what amounts had been received; the differential amount was brought to tax. This court is unpersuaded with the assessees arguments on this aspect. The ITAT has considered all the materials and the UK Revenue services communications, corroborating that the receipts were in facts GBP £233,991/- more than the sum declared for the given year (1993-94), i.e., GBP £6000/-. This was, according to the currency conversion at that time, `1,16,05,797/-. There is no infirmity amounting to a substantial error calling for interference by this court. ITA 988/2007 therefore, has to fail. ITA 478/2007: Anuj Chawlas appeal 78. Search under Section 132 of Income Tax Act 1961 was conducted on 31.08.1995 in case of the assessee the son of Shri Ashok Chawla as well as in cases of connected group companies and their employees. The Revenue discovered that the assessee was owner of certain immovable properties, lockers and bank accounts. A sum of `4 lacs was seized from the locker. The assessee, in his block return of income declared an undisclosed income of `37,58,388/-. In the assessment, the AO determined the undisclosed income from the block period at `1,84,35,244/- after making additions on several counts. Aggrieved with the said decision of the AO the assessee is in appeal before the Tribunal. 79. The addition of `53,84,258/- on account of deposit of money in the bank account of the assessee in India in AY 1993-94 and 1994-95 were upheld. These amounts were alleged to have been transferred from Discount Bank & Trust Co. Switzerland. The assessee explained that the money transferred was out of the income earned by him in USA as flight and ground ITA 478/2007 & connected matters Page 57 of 62 instructor. He also said that the money had been transferred through Shri Allen Saltmer, a family friend to whom the payment had been made in the form of travelers cheque/cash from time to time. Mr. Saltmers confirmation was obtained and placed on the record. The assessee also relied on certificates from his clients in USA regarding receipt of money for training obtained from him as instructor. The A.O. did not accept the genuineness of the assessees income earned in USA as there were no corresponding deposits in bank accounts did not support the receipts nor any evidence was produced for payment of any tax in USA. The ITAT also noticed that the assessee was only about 18 when he left India for USA in early 1990. Certificates dated 01.05.1990 and 01.10.1990 regarding successful completion of commercial ground school course and Instrument Ground School course by the assessee were produced. He was issued Commercial Pilot License dated 25.03.1991 and Ground Instructor License dated 04.04.1991 from the Department of Transportation, USA. The assessee had also been issued a J-1 visa which entitled him to work in USA. It was held that mere possession of qualification and permission to work does not prove that the assessee had really worked as an instructor had earned substantial money in USA. It was also held that no evidence was produced to substantiate that the assessee had sufficient experience in flying so as to take up a successful career as an instructor, nor that he had really worked as a Flight and Ground Instructor. The certificate procured from the foreign clients is on a plain piece of paper and these certificates were not authenticated and could not be treated as reliable. 80. This court is of opinion that the ITATs reasoning is sound. The failure of the assessee to produce credible or sound evidence supporting his ITA 478/2007 & connected matters Page 58 of 62 claim that the amount in question was his savings from earnings in the US for about 3 years. The probability of someone barely out of his teens, securing substantial earnings and to cap it, not possessing any bank account in the USA, is remote, to put it mildly. 81. The second head on which the AO had added amounts and brought them to tax, was the re-valuation of property. The assessee had declared the value of his properties; these were sent for fresh valuation by the AO. The relative particulars of the value declared in the block assessment and the revaluation together with the differential value, are reproduced in the following chart: S.No. Description Cost of Value as Differential of Property investment declared by value determined by assesse in AO return under Section 158BC 1. D-1/24, `42,90,000 `18,83,000 `24,07,000 Vasant Vihar 2. B-9, Saket `80,52,400 `13,25,000 `67,27,400 82. The ITAT was of opinion that the protective assessment made in the hands of the assessee, because of the substantive assessment in the hands of Ashok Chawla, was justified. It held that: "7.3 We have perused the records and considered the matter carefully. The addition under dispute is on account of undisclosed investments in the two properties under reference which stand in the name of the assessee. The investment in these properties came to light only from the documents found during search and, therefore, addition on account of under investment in these properties is justified in the block ITA 478/2007 & connected matters Page 59 of 62 assessment because the addition was being made only on the basis of material found during search. Though these properties are registered in the name of the assessee, the investment in these properties had been owned by Shri Ashok Chawla, the father of the assessee. During his examination u/s 131 by the Investigation Wing on 11.10.1995, Shri Ashok Chawla had been asked to give details of all the immovable properties owned by him in India or abroad either himself or in the name of wife, son or otherwise financed or in other capacity, money invested by him for purchase of land and/or construction/renovation etc. In response to the said question, he gave details of the several properties owned by him which also included B-9, Saket, and D-1/24, Vasant Vihar which stand in the name of the assessee. In view of this position, any addition on account of excess investment found on account of valuation report has to be added in case of Shri Ashok Chawla, the father of the assessee. The issue regarding the legal validity of the addition made on the basis of valuation report has been examined in detail in case of Shri Ashok Chawla where the addition has been made on substantive basis. As we have held that the addition has rightly been made on substantive basis in case of Shri Ashok Chawla, the protective addition in case of the assessee made by the A.O. is, therefore, deleted." 83. As noticed in the relevant discussion while deciding ITA 495/2007, there was nothing seized during the search under Section 132 which could have led the Revenue authorities to re-value the properties. The entire basis for the fresh exercise was that Ashok Chawla would have earned greater income having regard to the nature of his business transactions, which he must have kept away from the gaze of the taxman. No document, pointing to extra payment of the amounts (that constituted the differential between the transaction value and the finally determined value or some other value) was recovered or seized. In these circumstances, it is held that the assessment ITA 478/2007 & connected matters Page 60 of 62 order, including these amounts on protective basis cannot be upheld. ITA 478/2007 is therefore, partly allowed to the above extent. ITA 822/2008: Appeal of Vijaya Rajagopal 84. This assessee is aggrieved by the ITATs order dated 26th December 2006, which had rejected her plea. The AO had added `13 lakhs to her income during the block period, on the basis of a document found and seized during the search. The assessee, upon notice had filed a block return, declaring `21 lakhs as undisclosed income. The returns and documents field revealed that the acquisition cost of the flat was `9 lakhs. The AO was of opinion that the documents seized showed that Ashok Chawla acquired the flat through funding. He relied on two documents, A-9 and A-32 and rejected the assessees plea that the flat was a gift - which was later altered to payment through an interest free loan from Ashok Chawla. 85. It is argued that the value finally attributed for the flat is fanciful and arbitrary. Learned counsel submitted that the valuers report determined the property value at `18 lakhs. The AO, however, adopted an entirely different value of `22 lakhs. The Revenue, on the other hand, justifies the addition on the ground that it is primarily based on the materials recovered. 86. This court has considered the submissions and the relevant materials. The document seized and relevant for this purpose is a loose sheet of paper, containing figures. Against "E-6", the figure "22" is shown. Next to it "N-8" against which the figure "5" has been scribbled. Three other figures too have been shown. Ipso facto these mean nothing. The AO deduced that these reflected the true value of the property and went ahead to refer the matter to the valuation officer. The latter, in his report, after considering the then prevailing prices and looking at a transaction of 1996, felt that the value of ITA 478/2007 & connected matters Page 61 of 62 the property was `18.36 lakhs. In the absence of any credible material pointing at undervaluation, the exercise was unwarranted. Worse, after having secured the valuation report, the AO proceeded in an unprincipled manner, and decided that the true value of the property was `22 lakhs, bringing the balance `13 lakhs to tax. This court is of the opinion that the material found was sketchy and insufficient to warrant a fresh valuation. In any case, the AOs order did not even go by the valuation report, but on an entirely different footing- not based on any principle at all. Therefore, the addition has to be set as and is accordingly set aside. The ITAT had remitted the issue of ` 3 lakhs added by the AO for fresh consideration. In the light of the above discussion, ITA 822/2008 has to succeed. Conclusions 87. ITA 822/2008 is allowed. ITA 495/2007 and ITA 478/2007 succeed in part and are allowed. ITA 817/2007, ITA 479/2007, ITA 988/2007 and ITA 1246/2007along with W.P.(C) 4299/2007 (including IA 356 & 449 of 2017),W.P.(C) 7962/2009 and W.P.(C) 3517/2011 are dismissed. There shall be no order on costs. S. RAVINDRA BHAT (JUDGE) R.K. GAUBA (JUDGE) APRIL 11, 2017 ITA 478/2007 & connected matters Page 62 of 62
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