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TMI Blog2003 (9) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... aving jurisdiction on the assessee who had been searched that there was an undisclosed income, which has been found or detected as a result of search and that in support thereof he recorded a note of satisfaction. In the absence of any such valid material and or note of such satisfaction the assumption of jurisdiction and framing of assessment is wholly arbitrary and is thus unsustainable in law. 3. That the learned Dy. CIT Circle 11(1), New Delhi, has erred in framing the assessment under s. 254/158BC(c) of the Act without giving any independent reason for holding there was an undisclosed income and further computing the undisclosed income of the assessee at Rs. 3,31,20,258. The instant assessment made is wholly arbitrary and is without jurisdiction. 4. That in making the instant assessment, he has failed to appreciate that the Hon'ble Tribunal was pleased to set aside the assessment with a direction to reassess the issues involved in the assessment made and as such, before making the assessment, he was obliged in law, to have recorded his independent reasons after examining the evidence furnished and bring material to establish that there was any income which had not been discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition and as such the action of the learned Dy. CIT is without jurisdiction and totally untenable and unsustainable. 8.2 That the finding of the learned Dy. CIT that the Department had filed a reference against the order of the Hon'ble Tribunal and as such, the decision of the Tribunal cannot be applied to the fact of the case of the assessee is against the cannons of principles of judicial propriety as set out by the Hon'ble Supreme Court in the case reported in Union of India vs. Kamalksi Finance Corpn. Ltd. 5 ELT 433. 8.3. That further he has erred in concluding that the facts of the assessee's case were not brought before the Hon'ble Tribunal in the case of Paramount Enterprises Ltd., and in other cases. The observations made are based on misconception and is without any basis. In fact the learned senior Departmental Representative had in the case of Paramount Enterprises Ltd. had brought out the fact of the case of the assessee before the Hon'ble Tribunal by way of a written note and it is only after considering the note that the similar addition made had been deleted, and in view therefore, the addition made deserves to be deleted. 9. That in any case and without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted by an order dt. 29th Jan., 1999, at an undisclosed income of Rs. 3,31,20258 which order of assessment had been set aside by the Tribunal vide order dt. 21st Feb., 2000, and on further appeal by the assessee under s. 260A of the IT Act, the Hon'ble High Court was though pleased not to admit the appeal but held that any finding/observation made by the Tribunal would not be taken into consideration while making the fresh assessment. 3.3. The present assessment which had been impugned before us has again repeated the additions made originally in the order dt.29th Jan., 1999and the Dy. CIT has completed the assessment adopting the same sum as an undisclosed income, as had been held as an undisclosed income by an order dt.29th Jan., 1999. 3.4 While computing the undisclosed income at Rs. 3,31,20,258, the learned Dy. CIT has held the following sums as an undisclosed income: (a) The loss suffered of Rs. 17,65,247 by the assessee on the sale of certain shares in the asst. yr. 1995-96. The entire transaction pertaining to purchase and sale of such shares, in respect of which the loss had occurred, had duly been found recorded in the books of accounts maintained by the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,77,622 2,14,582 (b) Disallowance of expenses upon concluding that the activity is not business activity and therefore, expenses incurred cannot be allowed under the head "Income from business" 55,178 99,321 1,04,228 75,640 (c) (i) Disallowance of short-term capital loss under the head "Capital gain" - - - - (ii) Treatment of short-term capital gain as income from undisclosed sources under the head "Income from other sources" - - - - (d) Increase (+)/decrease (-) in income from various sources under the head "Income from other sources" due to reassessment from one head to another. (-)2,341 16,521 - - Gross Total Income 1,86,974 2,98,631 2,81,850 2,90,222 (e) Deduction under s. 80-M reduced (+)/enhanced (-) 6,404 (-) 5,896 - - (f) Deduction under s. 80F reduction (+)' enhanced (-) - - - - (g) Income due to applicability of section - - - - 115J originally adopted but now excluded from the undisclosed income computed from block assessment. - - - - Total 1,93,378 2,91,255 2,81,850 2,90,222 Particulars Assessment years 1991-92 1992-93 1993-94 1994-95 Total income adopted by the AO in block assessment 3,75,387 13,25,449 22,29, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources" - - - (-) 47,200 (d) Increase (+)/decrease (-) in income from various sources under the head "Income from other sources" due to reassessment from one head to another. (-) 83,000 11,43,933 3,21,298 9,66,171 Gross Total Income 2,05,37,957 35,38,222 21,70,468 3,31,30,166 (e) Deduction under s. 80-M reduced (+)/enhanced (-) - - - 508 (f) Deduction under s. 80F reduced (+)' enhanced (-) - - - (-) 8,936 (g) Income due to applicability of s. 115J originally adopted but now excluded from the undisclosed income computed for block assessment. - - - (-) 1,480 Total 2,05,37,957 35,38,222 21,70,468 3,31,20,258 4. On the basis of the aforesaid facts the learned counsel of the assessee submitted at the outset that the learned Dy. CIT exceeded in his jurisdiction while computing the undisclosed income, the purported undisclosed income for the asst. yrs. 1995-96 to 1997-98. It was contended by him that sub-s. (3) of s. 158BA of the IT Act specifically provides that where the assessee proves to the satisfaction of the AO that any part of income referred to in sub-s. (1) relates to an assessment year, for which the previous year has not ended or the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss suffered in the course of its business. It was specifically contended by him that all the transactions of purchase and sale are duly entered in the books of account which are also supported by relevant material i.e., contract of purchase and sale and the payments for purchase and sale have duly been reflected in the books of account which have duly been cleared through account payee cheques. It was submitted that all the transactions are verifiable and it is not that as a result of search it has been found or has been established by any material that such transactions had not been entered into and were either non-genuine or bogus. It was thus contended that there was no income, which could be regarded as an undisclosed income. 4.2 It was further submitted by the learned counsel that similarly any addition made, as an undisclosed income for the asst. yrs. 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93 and 1994-95 are entirely without jurisdiction, firstly because it is an admitted position of fact that no material whatsoever was found or seized much less even an alleged incriminating material, since admittedly only books of accounts of three financial years as noted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... &A Plantations & Industries Ltd. vs. CIT (2000) 242 ITR 22 (Guj) d. CWT vs. State Bank ofIndia(1995) 125 CTR (Bom) 461 : (1995) 213 ITR 1 (Bom) e. Bharat Hotel Ltd. vs. Dy. CIT (1964) 53 ITD 450 (Del) (relevant at p. 490) 4.5 The appellant's counsel further relied on the following judicial pronouncements in support that what has not accrued, could not be held and assessed as an income: a. CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC); b. India Finance & Construction Co. (P) Ltd. vs. B.N. Panday, Dy. CIT (1993) 109 CTR (Bom) 140 : (1993) 200 ITR 710 (Bom) relevant at 713; c. State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC); d. Uco Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 237 ITR 889 (SC); e. Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC); f. CIT vs. Shiv Prakash Janak Raj & Co. (P) Ltd. (1996) 136 CTR (SC) 421 : (1996) 222 ITR 583 (SC); g. Udayan Chinubhai & Ors. vs. CIT (1978) 111 ITR 584 (Guj); h. Anup Engineering Ltd. vs. CIT (2001) 165 CTR (Guj) 21 : (2001) 247 ITR 457 (Guj); i. Saraswati Insurance Co. Ltd. vs. CIT (2001) 169 CTR (Del) 170 : (2001) 252 ITR 430 (Del). 4.6 It was also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1998) 61 TTJ (Mumbai) 223 10. Essem Intraport Services (P) Ltd. vs. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 228 (Hyd) 11. Nagindas M. Goradia vs. Dy. CIT in ITA No. IT(S&S)A 99/Mum/1996 12. P.K. Ganeshwar vs. Dy. CIT (2002) 80 ITD 429 (Chennai) 4.8. The learned counsel further submitted that in all the said decisions it has been held that the provisions of Chapter XIV-B of the IT Act are not meant to reassess the income as envisaged under s. 148 of the IT Act. 4.9 He further elaborated that all other additions, which have been tabulated above, have similarly been made which goes to establish that it is a case of mere reassessment of income, which is outside the scope of Chapter XIV-B of the IT Act. 4.10. The learned counsel, as noted in para 4, above, contended that the learned Dy. CIT has also grossly erred in holding that the loss suffered of Rs. 1,76,52,477 in respect of sale of shares of HDC Ltd. for the asst. yr. 1995-96 represent an undisclosed income. It was submitted that the loss suffered cannot be regarded as the undisclosed income as it is not a case where, the transaction pertaining to either purchaser sale has not been found recorded in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss occurred) had been purchased by the assessee-company before the sale of shares of ABB Ltd. and Ingersoll Rand on which the assessee had made handsome gains. Therefore, the Revenue's plea that (sic) had entered into the transactions of purchase/sale of shares of HDC Ltd. with a view to set off the loss from the gain, is based on mere conjecture and surmises and without any material. He further submitted that no income had been earned or accrued till the date the share of HDC Ltd. were purchased by the assessee-company in the open market and as such there could be no question of making any attempt to set off the loss which could only have arisen when, before entering into the transaction of the purchase, the assessee had earned any income. It was submitted that when no such income had been earned and the shares had been purchased earlier to the sale on which income arose, the question of concluding that the transaction was entered with a motive to set off the loss, it was submitted, simply did not arise. In support, the assessee's counsel relied on the judgment of the Hon'ble Gujarat High Court in the case of Banyan & Berry vs. CIT (1996) 131 CTR (Guj) 127 : (1996) 222 ITR 831 (G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve also become final as no reference or appeal has been filed against such orders. 5. The learned Departmental Representative vehemently opposed each of the submissions made and heavily relied on the findings of the learned Dy. CIT and further submitted that the assessee has manipulated the transaction of purchase and sale of shares and as such the loss claimed to have been suffered on the sale of shares has correctly been disallowed by the learned Dy. CIT. It was his submission upon doing so the loss suffered obviously has to be regarded as an undisclosed income, since the assessee had suppressed income. He however, fairly submitted that all the transactions both of purchase and sale had duly been entered by the assessee in the hooks. It was his submission that merely because it had been so entered would not mean that such loss did not represent its undisclosed income. It was however not denied by him that any incriminating material was found, as a result of search, which showed the transactions of purchase and sale were either bogus or were not entered into between the parties or that even the sale of shares were not registered in the name of purchaser on the sale having been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002, and the learned Dy. CIT without either calling upon the assessee to further place on record any further material and to substantiate the submissions as contained in its reply or confronting any adverse material proceeded to frame the assessment by adopting the same income, which had originally been assessed by an order dt.29th Jan., 1999, which order was set aside on appeal by the Hon'ble Tribunal. It is thus apparent that the learned Dy. CIT could not have factually found any material to rebut the submissions of the assessee, which is also otherwise too, evident from the order of assessment. In fact, the learned Dy. CIT has not given any single reason or basis for making an addition of a sum other than of Rs. 1,76,52,477 being the loss suffered which too, in our considered opinion, is based on incorrect foundation and is otherwise too, no basis for making the said addition has been given. In our opinion, the assessee having made its detailed submissions dt.15th March, 2002, the learned Dy. CIT could not be held to be justified either on facts or in law to have proceeded to frame the assessment, without confronting any adverse material or rebutting the submissions and calling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as the asst. yr. 1996-97 is concerned the return of income had not become due and all the transactions had admittedly been entered in the books of accounts maintained by the assessee-company. Similar remains the position for the asst. yr. 1997-98 and as such there can be no justification to compute the income alleged to be undisclosed income since the same is against the mandate of s. 158BA(3) of the IT Act. In fact the learned Departmental Representative has fairly admitted that no undisclosed income could have been computed, while making the instant assessment for the asst. yrs. 1996-97 and 1997-98. 6.3 So far as the asst. yr. 1994-95 is concerned it has again not been disputed that return of income had been filed before search and no incriminating material had been found as a result of search as such here too there could have been no computation of undisclosed income for the asst. yr. 1994-95. So far as the asst. yr. 1995-96 is concerned return of income had duly been filed by the assessee-company on 23rd Nov., 1995, i.e., before the due date and before the search and as such in our opinion there could be no computation of undisclosed income, unless any material is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the income received by it or has not entered in its books of account any transaction, relating to the "income from house property". We further find that there is no justification to enhance the income from the house property notionally by estimating the element of interest on the advances received against rent. In view thereof, the addition made of Rs. 17,17,263 is totally untenable and is unjustified which cannot be held to be undisclosed income. Similarly, in our opinion, the learned Dy. CIT was not correct either on facts or in law in disallowing the expenses on the basis of mere change of opinion that the activity of the assessee for earning service income was not a business activity. In our opinion, whether such was a business activity or not is a question which has to be examined while making an assessment under Chapter XIV of the IT Act and cannot be a subject-matter of an assessment under Chapter XIV-B of the IT Act for the purpose of determining an "undisclosed income". In view thereof, in our opinion, the learned Dy. CIT has not acted in accordance with law in making the disallowance of the expenses incurred. We note here that it has not been the finding of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT was justified and correct in law in disallowing the loss of Rs. 1,76,52,477 on the sale of shares of HDC Ltd., for the asst. yr. 1995-96 and holding the same to be the undisclosed income of the assessee. In fact, as there had been no rebuttal from the side of the Revenue on the submissions made by the assessee, we hold that the undisclosed income computed by the learned Dy. CIT of Rs. 3,31,20,258 is totally untenable and is wholly unjustified. 7. The only other addition of Rs. 34,311 for asst. yr. 1996-97 and Rs. 31,298 for asst. yrs. 1997-98 aggregating to Rs. 65,609 made by Dy. CIT as included in the total undisclosed income of Rs. 3,31,20,258 which is in dispute is on account of unexplained investment in property No. 6, Amrita Shergil Marg, New Delhi which belongs to 8 joint owners (including the assessee-company) each having 1/8th share. 7.1 The learned counsel of the assessee had invited our attention to a decision of the Tribunal Delhi Bench "E" in IT(SS)A No. 324/Del/1997 in the case of co-owner Paramount Enterprises Ltd., wherein the aforesaid addition has been deleted by the Tribunal by holding that the Tribunal did not find any justification in sustaining the addit ..... 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