2017 (4) TMI 777 - HC - Income Tax

Legality of the search and seizure operations - Block assessment - Held that - 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. 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 Chawla s submissions in this regard are therefore, rejected. 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? - Held that - . 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 (2003 (1) TMI 6 - SUPREME Court ) applies. The argument that the assessment was void on account of bias, therefore, fails and is rejected. Whether the appellant, Ashok Chawla was given sufficient opportunity during the assessment proceedings ? - Held that - 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. 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. Additions sustained by the ITAT - Held that - During the course of assessment proceedings, the assessee, Ashok Chawla, in answer to queries, had on 27th 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 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. 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. As the assessee did not disclose the true value of this property, the adhoc valuation at ₹ 1.5 crores cannot be faulted. The addition sustained by the ITAT (Rs.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 ITAT s 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/-. Block assessment appeal by Centaur Helicopter Ltd - Held that - 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 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 assessee s arguments on this aspect. The ITAT has considered all the materials and the UK Revenue service s 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. Addition on protective basis - search u/s 132 - re-valuation of properties - Held that - 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 order, including these amounts on protective basis cannot be upheld. Addition to income during the block period, on the basis of a document found and seized during the search - Appeal of Vijaya Rajagopal - Held that - 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 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 AO s 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.

Summary

Issues Involved:
1. Legality of the search and seizure operations.
2. Competence of the Assessing Officer (AO) involved in the search to frame the assessment.
3. Whether Ashok Chawla was given sufficient opportunity during the assessment proceedings.
4. Justification of the additions sustained by the ITAT.
5. Appeals related to Centaur Impex and Centaur Helicopter Ltd.
6. Appeals related to individuals associated with Ashok Chawla, including Anuj Chawla and Vijaya Rajagopal.

Detailed Analysis:

1. Legality of the Search and Seizure Operations:
The court examined whether the search and seizure operations conducted by the Revenue were legally justified. The assessee argued that the search was motivated by malice and based on false information provided by a former business associate. The court, however, found no credible evidence to support these allegations. The court held that the material leading to the search was based on information about substantial unaccounted assets and receipts, and thus, the search was justified.

2. Competence of the AO Involved in the Search to Frame the Assessment:
The assessee contended that the AO who conducted the search should not have framed the assessment due to potential bias. The court referred to the Supreme Court ruling in Union of India v. Vipin Kumar Jain, which held that there is no inherent bias in allowing the same officer to conduct the search and frame the assessment unless personal bias or malice is proven. The court found no evidence of personal bias or malice against the AO and rejected the assessee’s argument.

3. Whether Ashok Chawla was Given Sufficient Opportunity:
The assessee claimed that he was not given copies of documents and thus denied a fair opportunity to defend himself. The court noted that this grievance was not raised at the earliest opportunity or before the ITAT. The court found that the assessee was aware of the nature of the documents seized and had the means to approach the court earlier if he had been denied inspection. Therefore, the court rejected this plea.

4. Justification of the Additions Sustained by the ITAT:
The court examined the various additions made by the AO and sustained by the ITAT, including those related to Swiss bank accounts, purchase of helicopters, commission from defense contracts, and investments in properties. The court found that the ITAT’s findings were based on substantial evidence and were reasonable. However, the court modified the ITAT’s order by deleting certain additions related to the revaluation of properties, except for the London property, which was upheld.

5. Appeals Related to Centaur Impex and Centaur Helicopter Ltd.:
- Centaur Impex (ITA 479/2007 & ITA 1246/2007): The ITAT had deleted an addition of ?40,65,086/- based on documentary evidence. The court found no unreasonableness in the ITAT’s approach and dismissed the Revenue’s appeal. The assessee’s appeal regarding another addition of ?51,12,392/- was also dismissed as the ITAT’s findings were based on a reasonable evaluation of the facts.
- Centaur Helicopter Ltd. (ITA 988/2007): The ITAT had upheld most of the AO’s additions based on detailed year-by-year analysis of undisclosed income. The court found no substantial error in the ITAT’s findings and dismissed the appeal.

6. Appeals Related to Individuals Associated with Ashok Chawla:
- Anuj Chawla (ITA 478/2007): The ITAT upheld additions related to deposits in Anuj Chawla’s bank account, rejecting his explanation of earnings from the USA due to lack of credible evidence. The court agreed with the ITAT’s reasoning. However, the court found the revaluation of properties without credible evidence to be erroneous and partly allowed the appeal.
- Vijaya Rajagopal (ITA 822/2008): The ITAT had upheld an addition based on a valuation report. The court found the basis for the addition to be unprincipled and set aside the addition, allowing the appeal.

Conclusion:
- Allowed Appeals: ITA 495/2007 and ITA 478/2007 (partly), ITA 822/2008.
- Dismissed Appeals: ITA 817/2007, ITA 479/2007, ITA 988/2007, ITA 1246/2007, W.P.(C) 4299/2007, W.P.(C) 7962/2009, W.P.(C) 3517/2011, IA 356 & 449 of 2017.