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TMI Blog2005 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... .S. Prasad, and on the steel almirah in the bedroom of Smt. B. Surya Prabha. As per the Panchnama neither any cash nor jewellery assets were found or seized. Only following books of account were found and seized: (i) One note book (Vidya Super Delux) cattle computers consisting of 13 pages. (ii) One account book (Kesava) consisting of pp. 1 to 19 and 71 to 173, and (iii) One bundle of loose sheets serially numbered from 1 to 53. 3. The AO issued notice under s. 158BC in the case of Smt. B. Surya Prabha, dt. 11th Nov., 1996, and while in other cases notices were issued as under: ITA No. 177, Authorised Representative, Late B.V.B.S. Prasad, dt. 11th Nov., 1996 ITA No. 180, Smt. B. Madhavi, dt. 11th Nov., 1996 ITA No. 175, Madhavi Finvest (P) Ltd., dt. 17th Jan., 1997 4. As mentioned in the assessment order, notice in the case of Madhavi Finvest (P) Ltd. was issued under s. 158BD while in other appeals it was issued under s. 158BC. After completion of the assessment, the AO vide letter dt. 26th May, 1998 clarified in respect of the group as under: "To be more specific block assessment orders in whose case warrant was issued during search are to be assessed under s. 158BC and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -6-92 1/Kakinada -do- 1992-93 IT 447 17 -6-92 1/Kakinada -do- 1993-94 IT 5106 31-3-94 1/Kakinada -do- 1994-95 IT 86 30-12-94 3/Kakinada -------------------------------------------------- 7. Mr. B.V.B.S. Prasad, husband of Smt. Surya Prabha, expired on 14th Oct., 1995 and she became the managing director of Madhavi Finvest (P) Ltd. Due to the death of the principal person, Mr. B.V.B.S. Prasad, the regular return for asst. yr. 1995-96 could not be filed in time and in the meantime, the search took place in the case of B. Surya Prabha before the close of the financial year 1995-96. The return for the asst. yrs. 1995-96 and 1996-97 were filed in the case of all the above said four assessees except Madhavi Finvest (P) Ltd. on 10th March, 1997. The note book seized consists of the entries relating to the money-lending activities and agricultural income earned by each of the assessees, the income for which except for asst. yrs. 1995-96 and 1996-97 were already shown in the return filed for the respective assessment years. The block assessments have been completed in each of the cases relying on the basis of the income disclosed in the note book so seized except the addition of en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectfully following the decision of Hon'ble apex Court in the case of National Thermal Power Co. Ltd. admit the additional ground of the assessee in each of the case. 11. Now, we will take up each of the appeals. IT(SS) A No. 175/Hyd/1997 : 12. The learned Authorised Representative contended for the additional, ground that the block assessment framed by the AO is void ab initio. There is no material with the AO to initiate proceedings under s. 158BC/158BD. For initiating action under s. 158BC, there must be search in the case of the assessee while for initiating action under s. 158BD, the AO must be satisfied before initiating proceedings on the basis of the material seized that the assessee had undisclosed income. There was no search in the case of the assessee. The search was carried out in the case of Smt. B. Surya Prabha and during the course of the search, no material relating to Madhavi Finvest (P) Ltd. was found. No books of account of the assessee were found. The AO issued letter for the first time dt. 27th Jan., 1997 by making the roving enquiries about the company, the copy of which is available at p. 31, the reply thereof was filed vide letter dt. 11th Feb., 1997, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit of the AO. The property, which was referred to, for initiating proceedings had already been disclosed in the return of income. The notices issued under s. 158BD were not valid and were liable to be quashed." 14. The reliance was also placed on the following decisions: (a) Ved Prakash Sanjay Kumar vs. Asstt. CIT (2000) 66 TTJ (Chd) 442 : (2001) 76 ITD 107 (Chd). (b) Smt. Farzana Farooq Desai vs. Dy. CIT (2002) 74 TTJ (Ahd) 507. (c) Suman Dhanji Zalte vs. Asstt. CIT (2000) 68 TTJ (Pune) 273 : (2000) 72 ITD 132 (Pune). (d) Dr. Ajay Kumar Aggarwal vs. Asstt. CIT (2001) 71 TTJ (All) 445. 15. It was further submitted that the assessee did not file any return as there was no business for the asst. yr. 1995-96 while for the asst. yr. 1996-97, due date has not expired. The AO procured the bank statement from the assessee when he filed the reply to the roving enquiries of the AO vide his letter dt. 27th Jan., 1997. Thus, there was no material for the satisfaction of the AO found during the course of the search which may make AO to form prima facie view that the assessee has undisclosed income. Even the assessment record of the assessee also does not contain any material or the sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the balance sum of Rs. 4 lakhs and Rs. 1.5 lakhs, it was submitted these funds have come by way of deposit from Maniam Ravi Babu Rs. 1 lakh, Gunnam Sarojini Rs. 1 lakh, Maniyam Shrimullu Rs. 1.5 lakhs, Rs. 50,000 from Endra Venkata Suba Rao, and Rs. 1.5 lakhs from Marini Veeraveni. 17. The confirmations in respect of these parties could not be filed because the AO did not give sufficient opportunity and completed the assessment within 10 days of the reply of the assessee. A request by way of a petition under r. 29 for the admission of the additional evidence was filed requesting this Bench to admit the additional evidence for rendering the substantial justice to the assessee. The learned Departmental Representative did not object to the admission of the additional evidence and was fair enough to concede on the basis of the order-sheet in the assessment file that the assessee was not given proper opportunity to adduce evidence. We, therefore, keeping in view that the AO has not given the proper opportunity to the assessee to adduce these evidence and the assessment was completed merely after given one notice and these evidence are essential to render substantial justice. We admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction Co. (P) Ltd. vs. CIT (1993) 111 CTR (Gau) 143 : (1993) 199 ITR 702 (Gau). 21. The learned Departmental Representative produced the assessment record of the assessee-company and was fair enough to state on the basis of the file of the assessee that no notice under s. 158BD was issued to the assessee. The notice under s. 158BC was for the first time issued on 17th Jan., 1997 as per the order-sheet in the file. The photocopy of the order-sheet was filed before us. The learned Departmental Representative even then relied on the following decisions: (a) Digvijay Cements Ltd. vs. Asstt. CIT (2001) 167 CTR (All) 299: (2001) 248 ITR 381 (All) (b) Rushil Industries Ltd. vs. Harsh Prakash (2001) 166 CTR (Guj) 300 : (2001) 251 ITR 608 (Guj) (c) Y. Subbaraju & Co. & Ors. vs. Asstt. CIT (2004) 85 TTJ (Bang)(SB) 670 : (2004) 91 ITD 118 (Bang)(SB). 22. It was further submitted on the basis of this decision that neither any material nor recording of the satisfaction is required for the purpose of making block assessment. Although in the assessment order, the AO has mentioned that the assessment was completed under s. 158BA(1) but it has subsequently been clarified vide letter dt. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan put up. Sd/- Illegible. 20-3-1997. Despatched Sd/- Illegible despatcher." 24. From the order-sheet, it is explicitly clear that no action under s. 158BD was taken against the assessee. Even the order-sheet neither states that search has taken place in the case of the assessee nor the action under s. 158BD was taken on the basis of the material seized in the case of Smt. B. Surya Prabha. The learned Departmental Representative was also fair enough to concede on the query from the Bench that there is no material whatsoever gathered during the course of the search on the basis of which the block, assessment proceedings were initiated against the assessee. From the record produced before us, it is apparent that the AO himself was satisfied that he has wrongly and illegally issued the notices and completed assessment under the impression that the search has taken place in the case of the assessee and therefore, he subsequently vide his letter dt. 26th May, 1998, i.e., much after the completion of the assessment clarified that the order passed in the case of the assessee be read as if it was passed under s. 158BD. The question before us is whether by such action taken by the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec. 158BD lays down as under: "Where the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or any assets were requisitioned under s. 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and that AO shall record (under s. 158BC) against such other person and the provisions of this chapter shall apply accordingly." 27. From the reading of the aforesaid section it is clear that for its applicability following essential ingredients are to be complied with: (a) The AO of the person who was searched should be satisfied. (b) That there is undisclosed income unearthed during search belonging to the person other than the one who was searched. (c) The books of account or the documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person. (d) The AO shall proceed against such other person under this chapter. 28. Thus, it is essential that there must be material showing the undisclosed income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts pertained to the assessee. This case will not apply to appeal before us, as in the case before us, there is no material seized during the course of search pertaining to assessee. Therefore, there cannot be any satisfaction that the assessee derived undisclosed income. Even AO issued notice under s. 158BC not under s. 158BD. 30. Coming to the case of Rushil Industries Ltd. vs. Harsh Prakash, we find that this case will also not assist the Revenue. In this case, when by way of petition under Art. 226 of the Constitution, notice dt. 29th Aug., 2000, issued by the Jt. CIT under s. 158BC r/w s. 158BD was challenged, the Hon'ble High Court has held that the bare reading of the provisions of s. 158BD showed that for taking action under the said section, the AO was merely required to be satisfied that the books of account or other documents or assets found in the search showed undisclosed income of the person other than one against whom the search was conducted. Merely because no books of account or documents belonging to the petitioner were found in the search, it could not be said that the action initiated under s. 158BD r/w s. 158BC was illegal or without jurisdiction. The disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustifiable the authorities when called in question, cannot escape to demonstrate the material that led to the satisfaction that undisclosed income of other person has been detected by the Department as a result of search. If the Department, for any reason, has no material whatsoever to come to that view, the proceedings under s. 158BD would have to be dropped because the very foundation for the assumption of jurisdiction becomes non-existent. Although the judicial authorities are not entitled to go into the sufficiency of the reasons, the existence of the reasons for satisfaction can always be gone into by the judicial authorities. In the instant case, there was no iota of material to show that there was undisclosed income. When such was the case, the satisfaction that the undisclosed income belonged to such other person was wanting. When that was the case, the entire proceedings framed with the issuance of notice under s. 158BD would have to go. In other words, if the basis of notice is not there, the notice itself is wrongly issued and making further assessment on such other person would be wholly outside the purview of the scheme. Thus, issuance of notice by itself is not the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12). In the result, all the appeals were to be allowed. (para 13)." 32. This case we find is squarely applicable to the case of the assessee. In case the AO treats that the assessment has been completed in pursuance of notice under s. 158BD, as in impugned case there was no material in existence for initiating action under s. 158BD. Similarly there is no material in existence for taking action under s. 158BD rather the Revenue has fairly agreed that there is no material found as a result of search in the case of the assessee which may point out the undisclosed income of the assessee. The decision of the Special Bench is binding before us. The decisions relied on by the learned Authorised Representative of the various Benches of Tribunal have also taken the view that if there is no material found as a result of the search which may pinpoint the existence of undisclosed income of the person who was not searched, the notice issued under s. 158BD was illega1. The learned Departmental Representative could not point out any other decision, which may have taken a different view. 33. The decision of co-ordinate Bench is also binding on us on the similar facts in view of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 was taken as loan from M/s Golden Agro Tech. Industries Ltd. The assessee did not repay the loan taken from the Vysya Bank. However, while repaying the loan the said cash credit was taken by the assessee. Since no satisfactory information was offered except stating that this cash credit represents repayment of the loan given, it was decided to bring the amount of cash credit of Rs. 35,50,000 to tax for the block asst. yr. 1996-97. Page 39 of the paper book consisting of letter dt. 10th March, 1997 showing the details for the sum of Rs. 13,00,000, Rs. 8,00,000, Rs. 5,00,000 and Rs. 4,00,000 proves the confirmations were duly filed. The same are available from pp. 39 to 67 of the paper book, and were duly verified by the AO. For a sum of Rs. 4,00,000 and Rs. 1,50,000 which were received on 1st March, 1996 and 2nd March, 1996, the evidence has been first time filed before us. The AO has come to know about these credits only through the bank statement filed by the assessee not on the basis of the material found during the course of the search. Sec. 158BB, which provides for computation of undisclosed income of block period expressly and unequivocally provides that the undisclosed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, when the interest-free loan were given to the directors from the amount borrowed on interest has held that notional interest can be assessed to tax although the disallowance of the interest may be justified. No contrary decision, has been brought to our notice by the learned Departmental Representative. We therefore, respectfully following the said decision delete the addition of Rs. 1,62,575 made by the AO towards presumptive income. 39. In the result, the appeal of the assessee is allowed. ITA 176/Hyd/1997 40. The learned Authorised Representative contended that there was no material found during the search and seizure, which may pinpoint the undisclosed income of the assessee. The additions are made merely on the basis of presumptions, conjectures and surmises. No doubt there was search in the case of the assessee, which took place on 22nd March, 1996 but no undisclosed income was found. Attention was invited to the Panchnama appearing at pp. 5 to 11 of the paper book which shows under para 5(b) that no cash, jewellery or valuable being undisclosed were found. Only the books of account under Annex. B/A were found and seized. These books were the cash book and ledgers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Chapter XIV-B where these are recorded in the regular books of account, in the absence of any material to show that these transactions are bogus, the reliance was placed in the case of CIT vs. Gom Ind. Ltd. (2002) 176 CTR (MP) 527 : (2002) 257 ITR 78 (MP). 43. For the proposition that the transactions disclosed in the return, which were the subject-matter for regular assessment, cannot be considered in block assessment, the reliance was placed on the following cases: 1. Monga Metals (P) Ltd. vs. Asstt. CIT (2000) 67 TTJ (All) 247 2. CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom) 44. Relying on the decision of Ravi Prakash Agarwal (HUF) vs. Asstt. CIT (2000) 67 TTJ (Del) 234, it was submitted that unless some material is found which is not recorded in the books, no addition can be made in block assessment. Further submitted that the AO cannot enlarge the scope of the provisions so as to re-examine what would have been subject-matter of regular assessment. In this regard, reliance was placed on the decisions of Essem Intra-port Services (P) Ltd. vs. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 228 (Hyd) and CIT vs. C.J. Shah & Co. Income below taxable limit ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und during the course of search. Our attention was drawn to the receipt and payment account in which investment in house at Kakinada is shown at Rs. 6,50,000. These payments were made through cheques drawn on Andhra bank, the copy of bank account given at p. 149 of the paper book. No doubt following entries appear at the credit in August, 1995 (not in April, 1995): 19-8-1995 Cash 1,50,000 By Transfer 2,50,000 By Transfer 2,00,000 46. The cash was deposited out of amount realized from debtors amounting to Rs. 1,26,500 and Rs. 25,000 interest received from debtors. The assessee was engaged in the money-lending business is not disputed and the money advanced was received back and deposited. This fact is self-explained from the receipt and payment account. No query or question for the same was asked and addition was made for this amount separately as undisclosed income for the cash deposit in Andhra Bank account No. 27410. The receipt and payment account was not considered at all while the balance sheet filed along with receipt and payment account was considered for making addition. Even the date of deposit has been wrongly mentioned as 14th April, 1995 instead of correct dt. 19t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance any argument except relying on the-assessment order. On a query from the Bench, the learned Departmental Representative clarified that the additions for the asst. yrs. 199596 and 1996-97 were made on the basis of bank statement collected subsequent to the search during block assessment proceedings. 49. We have considered the rival submissions and perused the material on record and also the order-sheet as well as the block assessment file as was put up by the learned Departmental Representative. We have gone through the case laws relied on from both the sides. First, we would like to deal with the additional ground of the assessee, which relates to the validity of the assessment made by the AO. From the copy of the assessment order, it is clear that the assessment in this case was completed under s. 158BC. There is no dispute that the search warrant was in the name of the assessee and the proceedings were initiated by issuing notice dt. 11th Nov., 1996 under s. 158BC. We find from the record that the assessee has filed block return on 10th March, 1997 vide receipt No. 000415 as appearing at p. 3 of the paper book, showing nil undisclosed income. However, the AO has wrongly m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1995 w.e.f. 1st July, 1995 to make procedure of assessment of cases in which search is initiated under s. 132 or where books of account, other documents or any assets are requisitioned under s. 132A. The chapter is titled 'special procedure for assessment of search cases'. The scheme of block assessment enacted under this chapter laying down procedure for the block assessment proceedings is intended by the legislature to operate simultaneously with the normal and regular scheme of assessment indicated under Chapter XIV of the IT Act. Both the tax schemes are independent of each other and they are mutually exclusive. Block assessment under Chapter XIV-B is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to material unearthed during search. Therefore, if the search action does not disclose undisclosed income, the question of any assessment being framed under that chapter is simply improper and outside the purview of that chapter. Clause (b) of s. 158B contains inclusive definition of undisclosed income and reads as under: "(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hapter XIV-B. The learned Departmental Representative has not brought out before us from the file of the assessee that the AO on the basis of the evidence found as a result of search unearthed any undisclosed income. The income detected by the AO on the basis of the returns, evidence and material filed by the assessee during block proceedings are not relatable to the evidence found as a result of search and may be a subject-matter of regular assessment but cannot be considered as part of the block assessment. In the case of CIT vs. Ravi Kant Jain, the Hon'ble Delhi High Court has held that a block assessment under Chapter XIV-B of the Act is not intended to be a substitute for a regular assessment, that its scope and ambit is limited in that sense to materials unearthed during the search, that it is in addition to the regular assessment already done or to be done. A perusal of the assessment order in the impugned case clearly shows that what has been assessed in the block assessment are the income relatable or to be considered in the regular assessment. Due to the aforesaid discussion, we hold that the block assessment framed on the assessee is invalid and without jurisdiction and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the income, which was disclosed in the regular return and was subject-matter of the regular assessment. No material was pointed out by the learned Departmental Representative, which may point out that this income was based on the bogus transactions. This income may be a part of regular assessment but cannot form part of the undisclosed income. The income was duly disclosed in the return filed although subsequent to the search as the due date of filing the return had not expired. There is, no whisper or evidence, which may suggest that the assessee would not have disclosed this income for income-tax purposes. Rather by filing the return, the intention of assessee of disclosing this income is proved. The provision of S. 158B(b) which defines the 'undisclosed income' in our opinion is also a charging provision as any income which can be assessed under Chapter XIV-B have to be first 'undisclosed income'. Sec. 158BB deals with the computation of undisclosed income of the block period but it cannot override the s. 158B(b). First, any income to be computed under Chapter XIV-B under s. 158BB has to be an undisclosed income as defined under S. 158B(b). If there is any conflict between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his account with Andhra Bank and the assessee in reply thereto submitted that most of the credits in the said account is received on account of realization and compensations received on account of death claims of my late husband and also amount received from M/s GATIL by way of salary, car hire, etc. She further stated that she had applied to the bank to supply her account copy and soon after the transactions with the said bank. The AO carne to know about the loan from Smt. P. Vankayamma and Shri P. Brahmaji only through the receipt and payment account filed by the assessee showing the purchase of the property as well as the source of the investment. There is realization from the debtors to the extent of Rs. 1,26,500 and the interest amounting to Rs. 25,000. This receipt and payment account was filed with the AO on 10th March, 1997 along with the return for the asst. yr. 1995-96 and which was not at all seems to have been considered by the AO. The addition of Rs. 4,50,000 and Rs. 1,50,000 in our opinion does not satisfy the conditions laid down in s. 158BB(1) that the undisclosed income should be assessed on the basis of evidence found as a result of search and such other material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the cash in hand shown by the assessee on 31st March, 1996 only Rs. 7,028 belong to the assessee, Rs. 14,729 relate to the HUF and Rs. 19,950 relate to Shri B. Ravi Prasad son of the assessee, in whose case proceedings for block assessment were dropped by the Department keeping in view of the quantum of cash, status of the assessee and the fact that no wealth-tax is payable on the cash upto Rs. 50,000. In our opinion the AO was not correct in law in making this addition merely on presumption without bringing any evidence contrary to the explanation given by the assessee. We have gone through the balance sheet of the assessee filed along with the return for asst. yr. 1996-97 and that of HUF. In the case of the assessee there was a cash balance of Rs. 7,028 while at the end of the asst. yr. 1995-96 the cash balance was Rs. 72,654 and as per the last day of the period for which the books of account maintained by the assessee were found, i.e., 31st March, 1994 the cash balance was Rs. 16,919. Under these facts, the plea of the AO that there was no cash in hand with the assessee and also that the total cash found relates' to the assessee cannot be accepted. We, therefore, delete t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the account of Madhavi Finvest (P) Ltd. with SBI account No. 091/5238 Date Amount 4-11-1995 Rs. 1,20,000 4-11-1995 Rs. 80,000 20-12-1995 Rs. 50,000 Please explain the source for the credit reflected in the account of Madhavi Finvest (P) Ltd. and also in your personal account. You may please note that in the absence of satisfactory explanation these cash deposits are liable to taxed as per the provisions of s. 68 of the IT Act." 65. The learned Authorised Representative carried us to the paper book of the assessee and submitted that there was no material which were seized during the course of the search carried out at (the premises of) Smt. B. Surya Prabha, which would have been found and formed the basis for taking action under s. 158BD. From the copy of the assessment it is apparent that the AO has completed the assessment under s. 158BC not under s. 158BD. It is only by way of his letter, dt. 26th May, 1998 (reproduced hereinabove) which was issued after completion of the assessment, the AO clarified that the order passed under s. 158BC be treated as passed under s. 158BD. Thus, it was submitted in the absence of any valid proceeding, the assessment must be annull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined to be of Rs. 2,50,000 - Rs. 1,50,000 as loan from the mother and Rs. 1.00,000 as loan from her brother. The AO made the addition of Rs. 8,50,000 as well as for Rs. 2,50,000 Le., both investment and source of the investment. The AO has wrongly observed that the assessee has not filed any IT return, the assessee even filed block return also, the copy of which was filed at p. 13 of the paper book in which the undisclosed income was shown at nil. The AO completed the assessment without considering the block return as well as the regular return of the assessee. The assessment was completed in haste so that the huge demand may be created against the assessee by making addition in respect of the income and investment shown in the regular assessment, not on the basis of the evidence found as a result of the search or as material or information relatable to any evidence found as a result of the search. This income cannot be added in the block assessment as it is not a substitute of regular assessment. Thus, the conditions laid down under s. 158BB(1) were also not complied with. The assessee was married and putting up at her in-laws. The house in which her parents were putting up cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "11-11-1996 The case is notified under s. 127 of the IT Act. Search was conducted on Golden Agro Tech Ind. Ltd., on 22nd March, 1996. Notice under s. 158BC put up Sd/ - Illegible Sd/ - Illegible 2-1-1997 Letter to the A put up. Sd/- Illegible Sd/- Illegible 16-1-1997 As Authorised Representative Sri V.V. Sundaram, chartered accountant, along with Sri Ramprasad appeared and the case is heard. Sd/ - Illegible Sd/ - Illegible 17 - 1- 1997 Reminder to the A put up Sd/ - Illegible Sd/ - Illegible 24-1-1997 Sri V.V. Sundaram appeared. Details called for is submitted. Sd/ - Illegible Sd/ - Illegible 27-1-1997 Questionnaires are typed as dictated and put up Sd/ - Illegible Sd/ - Illegible 11-2-1997 Sri V.v. Sundaram, chartered accountant, Authorised Representative appeared. Details filed are placed below. Sd/ - Illegible Sd/ - Illegible 3-3-1997 Sri V.V. Sundaram, chartered accountant, Authorised Representative appeared. Information filed is placed in record Sd/ - Illegible Sd/ - Illegible Assessment order is typed as dictated and put up. Sd/ - Illegible On challan put up Sd/ - Illegible Despatched Sd/ - Illegible Despatcher" 69. In this case also on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, a copy of which was filed before us. In our opinion, this income, which has already been disclosed in the regular assessment, cannot be regarded to be the undisclosed income under Chapter XIV-B in view of the definition under s. 158B(b). We therefore, delete the addition of Rs. 2,00,000 made in the asst. yr. 1993-94 by adopting the reasoning given in paras 55, 56 and 57 hereinabove. Similarly, the addition of Rs. 1,00,000 made in the asst. yr. 1994-95 in respect of investment made in the shares of GATIL is also deleted as it is also out of scope of Chapter XIV-B of the IT Act as this investment was duly disclosed by the assessee in the regular assessment. 73. Coming to the addition of Rs. 1,50,000 and Rs. 2,10,000 made in the asst. yr. 1995-96, we find that the assessee has filed the return for the aforesaid assessment year on 10th March, 1997 before the same AO, and before the completion of the block assessment. The assessee has also filed the copy of receipt and payment account. It is apparently clear that the shares investment made in GATIL amounting to Rs. 1,50,000 and shares in Madhavi Finvest (P) Ltd., amounting to Rs. 2,10,000 were out of the sale proceeds of 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing the names of the donors and the details of the gifts received by the assessee. The copy of such details of the gifts, are given from p. 149 onwards. Some of the gifts consisting of Rs. 20,000, Rs. 20,000, Rs. 25,000, Rs. 25,000, Rs. 30,000, Rs. 30,000, Rs. 30,000 and Rs. 20,000 were received by the assessee through demand drafts from her close relatives. The relation has also been mentioned at p. 149 of the paper book. The AO mentioned in the assessment order that the assessee has not given addresses of the donors, but from the paper book, we find that the addresses of the donors are duly given in the details. The details excluding relatives are of 79 persons. It is customary to receive gifts by a girl at the time of her marriage; the quantum of gifts will depend on the status of the family. Rs. 2,00,000 are the gifts received through demand drafts and the balance gifts are amounting to Rs. 3,26,112. The AO in our opinion, if was not satisfied about the genuineness of the gifts should have issued summons to these parties so that the genuineness of the gifts could have been verified. The AO even has not gone to the aspect of the expenses incurred at the time of marriage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is allowed. IT(SS)A No. 177/Hyd/1997 78. In this case also in respect of the additional ground, the learned Authorised Representative relied on the submissions already made in ITA No. 175/H/1997 and ITA No. 180/H/1997, as the facts in this case, relating to the issue of the notice under s. 158BC without issue of search warrant and without invoking provisions of s. 158BD, are similar as were in those cases. The learned Authorised Representative in addition to the reliance of the arguments advanced in those cases, further submitted that the notice has been issued in this case to the Authorised Representative of Smt. B. Surya Prabha in the status of HUF as is apparent from first page of the paper book consisting of the copy of the notice issued by the AO by which the block assessment proceedings against the assessee were initiated. The proceedings cannot be initiated by serving notice on the Authorised Representative. The provisions of service of notice are laid down under s. 282 and the same were not complied with. The notice has to be served on the member of the HUF or the Karta of the HUF. As is clear from 1st page of the assessment order, the assessment order has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the HUF, the notice has to be issued as per s. 282(2) on the Karta or the adult member of the family. The proceedings cannot be initiated by issuing the notice on the Authorized Representative. Thus, the block assessment proceedings in our view are illegal and void ab initio in the absence of valid notice and valid service thereof. After the death of Sh. B.V.B.S. Prasad, his eldest son, Sh. B. Ravi Prasad became the Karta of the HUF and therefore, framing an assessment in the name of Sri (late) B.V.B.S. Prasad through legal representative Smt. B. Surya Prabha, in the status of HUF is void ab initio. The assessment can be framed through the legal representative as per the provision of s. 159 which is applicable in the case of individual assessee. The HUF did not die only a member thereof can die. The provisions of s. 159 are not applicable in the case of the HUF and, therefore, on this ground also the block assessment is liable to be quashed and accordingly, we cancel the block assessment. 82. The learned Authorised Representative for the addition of investment in the share capital of GATIL under the promoter quota firstly, submitted that there was no search in the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposition taken by the search officials at the time of search operations from Smt. Hymavathi, wife of Sri Ramakrishna at Hyderabad, there was no allegation that the said suitcases had been given to her by the assessee. She also stated that Mr. B. Ravi Prasad had given the suitcases for safe custody. Neither Shri Ramakrishna nor his wife Smt. Hymavathi had deposed that it was the assessee who had given the said suitcase for safe custody. The allegation of the learned Asstt. CIT, that most of the promoter-shareholders of the said company had explained their sources for their investment in the said company was agricultural and such assertion was not verifiable, was not correct for the reasons that all the promoter -shareholders did not have only fertile agricultural lands in their own names but other family members also had fertile agricultural lands. Pooling the agricultural income of all the family members, the promoters of the said company had invested in their names or in the name of family members depending upon the circumstances. The promoter had produced details of the agricultural land holdings of the promoter-shareholders of the said company in their letter of confirmation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smt. V. Veerayamma 20. Kum. V. Usha Anantha Padamavathi 21. Sri B. Venkateshwara Rao 22. Sri B. Veera Raghavulu 23. Sri P. Venkata Rao 86. The learned Authorised Representative also stated that the rest of the promoters could not personally attend to Hyderabad due to travelling from their own villages in East Godavari District in response to the summons issued by the learned Asstt. CIT/ADI as in most of the cases the summons had been served one or two days prior to the date of hearing and in some cases summons had been received after the date of hearing. Also that most of the promoters were agriculturists and due to rains/cyclones that had affected their agriculture for more than two times in April, 1996 to February, 1997, they had remained busy in salvaging the damaged crop or in harvesting the crops. Further, it was contended that in almost all cases, all of them had admitted by filing letters and in fact some of them filed affidavits, wherein they had confirmed that out of their agricultural and dairy income, they had invested in the promoters quota of M/s Golden Agro Tech Industries Ltd. Even some of the very few shareholders in promoters' quota who due to fear of harassm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and also to sell their shares if there has been an increase in the market rate of shares of the company as per the statements given by them to the IT Inspector of the office of the Asstt. CIT when he had examined them in the premises of the shareholders. 89. Regarding the allegation of the learned Asstt. CIT that there were variations in the signatures of the promoter-shareholders, it was contended that none of the promoters had denied that the signatures in various forms were not theirs. Since they were not accustomed to sign regularly on forms, documents, naturally their signatures had changed from time-to-time. Further, two persons named, Sri V.V.G. Chowdary and Sri Y. Venkata Rao also attended the office of the ADI in response to the summons issued to them and affirmed that it was they who had signed the relevant forms in different styles. The Asstt. CIT also had no evidence that the signature of the promoters were forged. It was a mere suspicion and conjecture of the learned Asstt. CIT. 90. In regard to the observation recorded by the Asstt. CIT that the photocopies of the signed transfer deeds relating to some of the shareholders had been maintained by Sri Late B.V.B.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce last two months." 92. On this, the statement of Shri B. Ravi Prasad was recorded under s. 131. The relevant portion of his statement is reproduced as under: Statement of B.B. Ravi Prasad recorded on 25th March, 1996 under s. 131 of the IT Act, 1961 "Q. NO.5 Under what circumstances shares of Golden Agro-Tech Ind. Ltd. was kept by you at the residence of Mr. K. Ramakrishna and whether they were aware of the contents of the suitcase? Ans. My father involved Mr. R.Y. Ramana Chowdary for mobilizing shares and people invested on the faith of my father. After his sudden demise investors were worried about the future of the company so they asked Mr. Y. Ramana Chowdary to dispose their shares in the open market. So he brought these shares to Hyderabad by car in about a month after the death of my father. As we felt that my place was not secure enough because I was shuttling between Kakinada and Hyderabad most of the time, we thought of keeping the shares of friends and relative along with my father's and Madhavi Finvest shares, purchased in the open market in Mr. K. Ramakrishna's place who is my mother's brother's son during November or December, 1995 by Mr. Y. Ramana Chowdary. I o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------ 9. K. Ramakrishna 50 Shares ------------------------------------------------- 10. K. Krishnamurthy 50 Shares ------------------------------------------------- 11. K. Venket Rao 50 Shares ------------------------------------------------- 12. MYN Murthy 50 Shares ------------------------------------------------- 13. S. Ajay Kumar 5,000 Shares ------------------------------------------------- 14. D. Sudarsanamma 4,000 Shares ------------------------------------------------- 15. A. Laxmi Mangatayaru 2,500 Shares ------------------------------------------------- 16. M. Veera Veni 1,000 Shares ------------------------------------------------- 17. M.S. Markandeyulu 2,500 Shares ------------------------------------------------- 18. S. Sunita 5,000 Shares ------------------------------------------------- 19. Y. Subba Rao 2,500 Shares ------------------------------------------------- 20. Y. Nageshwara Rao 2,500 Shares ------------------------------------------------- 21. A. Surya Kumari 2,700 Shares ------------------------------------------------- 22. G. Padmavathi 3,000 Shares ------------------------------------------------- 23. P. Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------------------------- 52. P. Veera Raju 5,000 Shares ------------------------------------------------- 53. C. Veerajaama 5,000 Shares ------------------------------------------------- 54. P. Suryaprakasa Rao 5,000 Shares ------------------------------------------------- 55. M. Brahmaji 10,000 Shares ------------------------------------------------- 56. BVV Satyanarayana 10,000 Shares ------------------------------------------------- 57. S. Subba Rao 10,000 Shares ------------------------------------------------- 58. Y. Ramakrishna 10,000 Shares ------------------------------------------------- 59. K. Venkat Rao 5,000 Shares ------------------------------------------------- 60. V. Satyanarayana 10,000 Shares ------------------------------------------------- 61. Y. Subrahmanyam 10,000 Shares ------------------------------------------------- 62. Y. Suryavathi 10,000 Shares ------------------------------------------------- 63. C. Sathyawati 10,000 Shares ------------------------------------------------- 64. C. Satyanarayana 10,000 Shares ------------------------------------------------- 65. Y. Veeraraj Chowdary 10,000 Shares ----------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h other items specified above by car Tata Estate, AP 9 8888 belonging to the company on 15th Nov., 1995, starting at early hours from Kakinada and reached Hyderabad same day afternoon. It was kept in the flat of Mr. B.B. Ravi Prasad on 17th Nov., 1995 at around 4.00 p.m. I took these suitcases in the same car and handed over to Mr. K. Ramakrishna personally. He asked me the contents of these suitcases and I replied that it contains share certificates were collected from the respective shareholders for the disposal at their request since after the death of the managing director they wanted to sell. These shares were shifted from flat of Mr. B. Ravi Prasad to the flat of Mr. K. Ramakrishna for security reasons since Mr. B. Ravi Prasad was shuttling between Kakinada and Hyderabad. Q. NO.6 Do you know car driving, and how did you take the share certificates in the suitcases to the residence of Mr. K. Ramakrishna? Ans. I do not know car driving. The company car driver Mr. V. Sriniwas drove the car and I engaged two auto drivers to assist in lifting the suitcases and to carry it to the residence of Mr. K. Ramakrishna. The driver did not accompany or assist us in shifting these suitcase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that none of the parties who were examined at oath mentioned that the shares belong to the assessee-HUF. We have gone through the block assessment order, and we find that the AO presumed on the basis of the statement recorded and the statement of Smt. K. Hymavathi in whose case search has taken place that the assessee has invested in the shares. No doubt the statement recorded under s. 132(4) of Smt. K. Hymavathi may be used thereafter in evidence in any proceeding but Smt. K. Hymavathi did not mention the shares belong to the assessee-HUF. Even this evidence is also rebuttable and for that great responsibility lies on the AO to give proper opportunity to the assessee but from the file, it appears no opportunity was given to the assessee-HUF. The share certificates are not in the name of the assessee. Some of the shareholder were examined but they also did not state that the assessee has invested the money. For the applicability of s. 69, the first onus lies on the Revenue to prove that the assessee has made the investments during the financial year immediately preceding the assessment year and the same has not been disclosed by the assessee in his books of account. Even from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bringing any evidence on record. These incomes were duly disclosed in the note book consisting of the account books found during the course of the search in the case of Smt. B. Surya Prabha For the asst. yrs. 1991-92 to 1994-95, it was contended, the interest income and agricultural income were duly disclosed in the IT returns filed as per the details given at p. 227 of paper book in the case of Smt. B. Surya Prabha. Sec. 158B(b) is a charging provision and the AO does not have any jurisdiction to review such income. There was no material found in search which empowers the AO to treat such income to be undisclosed income. Chapter XIV-B cannot be applied in substitution of Chapter XIV. For the additions made in asst. yrs. 1995-96 and 1996-97, it was stated that the additions for interest on money-lending business for both the years and investments in Madhavi Finvest (P) Ltd. in asst. yr. 1995-96 was not made on the basis of the material found during search but on the basis of the returns/information filed by the assessee. The interest income being derived by the assessee regularly is on record in the earlier years. The return/information filed by the assessee in the course of block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded to be the undisclosed income in view of cl. (ca) of sub-s. (1) of S. 158BB. Therefore, the addition made for the interest income and agricultural income for the asst. yrs. 1986-87 to 1994-95 stand deleted. For the asst. yrs. 1995-96 and 1996-97, since the income was earned from the same source, i.e., the interest from money-lending business, the return for the asst. yr. 1996-97 was not due till 22nd March, 1996 when the search took place, the source of such income was already disclosed in the earlier assessment years. This income on the basis of the return filed by the assessee after the search cannot be regarded to be the undisclosed income of the assessee. This was the income, which was disclosed in the regular return and was subject-matter of the regular assessment [refer to S. 158BB(1)(d)]. No material was pointed out by the learned Departmental Representative, which may point out that this income was, based on the bogus transactions. This income may be a part of regular assessment but cannot form part of the undisclosed income. The income was duly disclosed in the return filed although subsequent to the search as the due date of filing the return had not expired. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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