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TMI Blog2003 (3) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment in terms of provisions of the said Chapter, on facts and circumstances of the case and as per provisions of law, it be held that the AO erred in considering amount of Rs. 27,50,000 as investment alleged to have been done on account of finance for arranging bogus NRE gifts and holding the same as forming part of the income covered by Chapter XIV-B of the Act in making additions of Rs. 82,500 on account of commission at 3 per cent alleged to have been earned on alleged investment of Rs. 27,50,000 and holding the same as forming part of the undisclosed income, in making addition of Rs. 1,60,000 as undisclosed income on account of amount alleged to be received from Mr. Rajendra D. Mehta till 30th, in making addition of Rs. 4 lacs on account of amount alleged to be received from Rajendra D. Mehta by 15th April, 1994, in making addition of Rs. 4 lacs holding the same as forming part of the income being gifts alleged to have been not genuine in making addition of Rs. 2,52,750 by holding the investment as unexplained stated to have been done in construction of house property, in making further addition of Rs. 18,73,925 holding the same as forming part of the income on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as per draft order 25-9-1997 Additions as per order 30-9-1997 Difference 1. Investment on account of finance for arranging bogus NRE gifts as discussed 27,50,000 27,50,000 2. Commission at 3% on above 82,500 82,500 3. Amount to be received from RD Mehta upto 30th 1,60,000 1,60,00 4. Amount received from RD Mehta by 15-4-1994 4,00,000 4,00.000 5. Income from NRE gifts not genuine 4,00,000 4,00,000 6. Income on account of unexplained investment in construction of house property 2,52,750 2,52,750 7. Undisclosed income on account of investment in foreign exchange - 18,73,925 18,73,925 8. Commission earned for arranging bogus NRE gifts - 4,00,000 4,00,000 9. Commission earned for arranging bogus NRE gifts - 9,00,000 9,00,000 4. Shri Pathak contended that he would first like to make his submissions in relation to additions appearing at Sr. 7, 8 and 9. The learned counsel pointed out that proceeding of search was conducted by Enforcement Directorate (FERA) at the premises of the assessee as well as on Shri Rajendra D. Mehta on 23rd Sept., 1995. Thereafter, proceeding under s. 132 of the Act was conducted at the premises of Shri R.D. Mehta. The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(TM) 1 : (2000) 73 ITD 425 (Del)(TM); (iii) Smt. Neena Syal vs. Asstt. CIT (2000) 69 TTJ (Chd) 516 : (1999) 70 ITD 62 (Chd); (iv) CIT vs. Jai Prakash Singh (1996) 132 CTR (SC) 262 : (1996) 219 ITR 737 (SC); (v) CIT vs. Bharat Kumar Modi & Ors. (2000) 164 CTR (Bom) 273 : (2000) 246 ITR 693 (Bom); (vi) C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC); and (vii) Ponkunnam Traders vs. Addl. ITO & Anr. (1972) 83 ITR 508 (Ker). He also drew our attention to the relevant extracts from the Commentary on Income-tax Law by Chaturvedi and Pithisaria Vol. 3, 5th Edn. p. 4845 to support his contention about cancellation of such addition instead or restoring the matter back to the AO. 5. Shri S.U. Pathak submitted that all these additions mentioned at Sr. No. 7 to 9 of the chart which have been made in violation of the principles of natural justice are also devoid of any merit. He drew our attention to the assessment order passed in the case of Shri Rajendra Devraj Mehta. Shri Rajendra Devraj Mehta was also a co-partner of the assessee in the partnership-firm styled as M/s Ratnadeep Jewellers. At p. 59 of the assessment order in the case of said Shri Rajendra Devraj Mehta, the AO has ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel pointed out that these additions have been made by the AO on the basis of documents found and seized from the possession of the assessee Mr. Prakash Bafna by the Enforcement Directorate (FERA) during the search conducted on 23rd Sept., 1995. A photocopy of the seized documents has been placed at pp. 2 to 32 of the compilation. It was pointed out by the learned counsel that all these additions have been made on the basis of the seized papers a photocopy whereof has been placed at p. 2 of the peper book. The English translation thereof was also submitted during the course of hearing on 25th Feb., 2003 in supplementary paper book at p. 45. The English version as given by the learned counsel of this chit at p. 2 of the paper is reproduced below. "1. R.D. account to be given 2. Clock R.D. to clarify 3. R.D. gold account to be made 4. Telephone ours yours 5. Gold making account to be given R.D. 6. NRE work, 27/50 to be taken R.D. 7. Rajubhai to give account by the 30th 8. Rajubhai 1/60 30th date D.D. To be taken 9. Rajubhai 4 peti will complete the job by 15th April, 1994 10. After giving the cheque 10 to be taken" The learned counsel contended that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame said seized paper is also patently wrong, says the learned counsel. He submitted that the contents of the seized paper do not indicate as to whether the amount was to be paid or to be received from Shri Rajubhai. Moreover, it only indicates an intention to pay/receive but does not represent the actual transaction having taken place. He submitted that no tax can be levied on transaction intended to be carried out on a future date. 9. As regards the addition of Rs. 4 lacs mentioned at Sr. No. 4 of the said chart being alleged "amount received from R.D. Mehta by 15th April, 1994," the learned counsel contended that the said seized paper does not indicate whether the assessee had to pay that amount to R.D. Mehta or they have to receive the amount in question from him. As regards the addition of Rs. 4,00,000 being alleged income from NRE gifts, the learned counsel contended that the assessee received gifts aggregating to Rs. 4,00,000 from various NRE. The return of income for asst. yr. 1994-95 and 1995-96 were submitted by the assessee on 18th Sept., 1996. The fact relating to receipt of the aforesaid gifts were duly disclosed in the said returns of income. The genuineness of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained investment in construction of house property. The assessee had disclosed cost of construction at Rs. 2,74,450. The registered valuer determined the cost of construction at Rs. 2,77,400. The Departmental Valuation Officer (DVO) determined the cost of construction of Rs. 5,27,200. The AO has added the difference between the estimate of cost of construction made by the DVO as compared to the cost declared by the assessee amounting to Rs. 2,52,759. The learned counsel contended that such an addition made on estimate basis would not come within the ambit of undisclosed income defined in Chapter XIV-B relating to assessment for block period. Reliance was placed on the decisions reported as CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom), Vrishali Hotels (P) Ltd. vs. Asstt. CIT (2000) 66 TTJ (Pune) 692, (1999) 64 TTJ (Del) 786 and Indore Construction (P) Ltd. vs. Asstt. CIT (2000) 66 TTJ (Ind) 420 : (1999) 71 ITD 128 (Ind). The learned counsel also submitted a copy of the statement of affairs as on 31st March, 1998 showing that the assessee's total capital was only Rs. 9,17, 200. The addition of such large amounts is apparently arbitrary in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions made by the learned representative and have gone through the orders of the learned departmental authorities. We have also perused all the documents submitted in the compilation, to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments cited by the learned representatives of both the sides. 16. The assessee Shri Prakash B. Bafna is one of the partners of the firm M/s Ratandeep jewellers. The other partner in the firm was Shri Raju D. Mehta. The officers of the Enforcement Directorate (FERA) conducted a search at the premises of the assessee on 23rd Sept., 1995. The statement of the assessee was recorded by the officers of the Enforcement Directorate (FERA) in his own handwriting on 23rd Sept., 1995, and 24th Sept., 1995. The English translation of the said statement was furnished by the assessee to the Asstt. CIT along with letter dt. 11th Oct., 1996. It may be relevant here to refer to some of the facts recorded in the aforesaid statement dt. 23rd April, 1995. The English version of said statement has been placed at pp. 63 to 65 of the paper book and photocopy thereof has been placed at pp. 47 to 58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded on 23rd Sept.,1995 is true and correct. I continue my statement in writing below. I have been shown and explained in Hindi, the statement of Mr. Raju Mehta recorded on 22nd Aug., 1995 and 23rd Aug., 1995, in English under s. 40 of the FERA. According to Mr. Raju Mehta I used to finance NRE a/cs opened by him and I used to finance funds required for the purpose of purchase of foreign currency illegally from the open market and for depositing such foreign currency in the a/c of P.B. Panwani and Shri J.G. Lalwani and NRE a/cs of other NRIs. It is also written in his statement recorded that foreign currency purchased illegally from open market equivalent to Rs. 1.5 crores in aggregate, out of funds financed by me has been deposited in these NRE a/cs. It is also written in his statement that I used to supply the names and addresses of persons in whose names NRE cheque/draft were to be issued. The profit/premium arising on the sale of NRE cheque/draft was shared equally by both of us. I confirm the statement of Raju Mehta in this respect recorded on 22nd Aug., 1995 and 23rd Aug., 1995, and agree with the same. I used to give Indian currency to Raju Mehta for purchasing foreign c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1995, to Enforcement Directorate, (FERA) Mumbai it is stated that this paper is written in your own handwriting. In 6th line of this Chit (document) following words and figures are stated." The assessee contended that the copy of the statement recorded by the AO on 18th Sept., 1997, was not supplied to him. He drew our attention to letter dt. 19th Sept., 1997, placed at p. 197 of the paper book in which Mr. Bafna requested the AO to supply copy of the statement recorded on 18th Sept., 1997. However, the assessee has nowhere stated before the AO nor the learned counsel has stated before us that the extracts reproduced from statement dt. 18th Sept., 1997, in para 9.1 of the assessment order are incorrect. It is, therefore, clear that the facts mentioned in the statement written by Shri Bafna in his own handwriting on 23rd Sept., 1995, recorded by the Enforcement Directorate (FERA) were once again admitted by him before the assessing authority in his statement record on 18th Sept., 1997. The Bench required the learned counsel to state as to whether the assessee had retracted from the aforesaid statement recorded on 18th Sept., 1997, by the AO in which he confirmed the facts stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over, it was admitted by the learned representatives of both the sides during the course of hearing that various gifts made out of bank accounts of different NRIs referred to in assessment order have offered the amount of such bogus foreign gifts received by them, as income liable to tax and they have paid the taxes on such amounts. The Tribunal in some cases of recipients of such bogus foreign gifts have even sustained penalty under s. 271(1)(c) to the extent of 100 per cent of the tax sought to be evaded by them in respect of such bogus foreign gifts. 19. It may also be relevant here to refer to the extracts of statement of Mr. Bafna recorded in the course of assessment proceedings in the case of Mr. R.D. Mehta. The AO has reproduced the same in para 8 of the assessment order while making an addition of Rs. 4.00 lakhs in respect of such bogus gifts taken by the assessee from four NRIs which is the subject-matter of addition mentioned at Sr. No. 5 of the Chart. "8. In the statement of assessee recorded by the undersigned on 18th Sept, 1997, assessee has stated that above mentioned gifts are genuine (Q. No. 8 of the statement). However, in the statement of cross-examination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther probe and detailed investigation. 21. The request made by the assessee's counsel that the assessment should be annuiled or cancelled or set aside and the matter should not be restored back to the AO for passing fresh order, has no merit in view of the facts and discussions made hereinbefore. It is a case where the involvement of Mr. Bafna (assessee) along with Mr. R.D. Mehta for running a racket of giving bogus gifts out of bogus NRE accounts, appears to be certain. However, it was also necessary that adequate and reasonable opportunity ought to have been given to the assessee in respect of the entire material on which reliance has been placed in the assessment order against the assessee. 22. It may now be relevant to make a useful reference to the judgment of the Hon'ble Supreme Court in the case of Jai Prakash Singh. The Hon'ble Supreme Court in this case observed that an omission to serve or any defect in the service of notices provided by procedural provisions does not efface or erase the liability to pay tax where such liability is created by a distinct substantive provision. Any such omission or defect may render the order irregular depending upon the nature of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was going to be time barred by limitation stating that the statement was recorded by the Enforcement Directorate (FERA) under threat and ceoercion. In this letter the assessee has not even stated a word about his accepting the same statement once again before the AO in his statement on oath recorded on 18th Sept., 1997. Now, the learned counsel wants that the assessment made under s. 158BC without providing an adequate and reasonable opportunity in respect of some material should be annulled. Such a request by the learned counsel is clearly contrary to the principles of law enunciated from the judgments of the Hon'ble Supreme Court and the Hon'ble Bombay High Court referred to above. 24. The learned counsel, inter alia submitted that various additions made in the case of Shri R.D. Mehta on protective basis were made in the hands of the assessee on substantive basis. Those additions have now achieved finality in the hands of Mr. R.D. Mehta, as the Tribunal has dismissed the appeal in the case of R.D. Mehta vide order dt. 31st March, 2000, in ITA No. 95/PN/1996. He, therefore, urged that same amount cannot be assessed once again in the hands of the assessee. A perusal of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidence against the assessee. The assessee is, of course, entitled to an opportunity to show that the aforesaid facts are incorrect or that such statements were recorded under coercion or threat. The assessee will have to discharge the burden of proving this by producing clinching and conclusive evidence. Likewise the AO will also have to provide copies of the entire material discussed in the assessment order of R.D. Mehta to the assessee and provide him a reasonable opportunity thereafter to make his submissions in that regard and to submit evidence in rebuttal thereof. It may be worthwhile to mention, that if as a result of further probe and deep investigation, it is found that the entire income or part of such income is rightly assessable in the hands of the assessee, the addition made in respect of these very amounts, in the hands of Mr. R.D. Mehta, if any, may by deleted under s. 154 of the Act, in consonance with the circular issued by the Board, it will be relevant here to reproduced the said circular as appearing in Taxman's Direct Taxes Circular Vol. 2 page 1172. "459. Board's authorization for taking action under s. 154 beyond time limit specified under s. 154(7) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also contended that the amount should be read as Rs. 2,75,000 as mentioned by Mr. Bafna in his statement dt. 23rd Sept., 1995, before the FERA authority. It is true that there is no basis of translating 27.50 mentioned in the siezed document placed at p. 2 of the paper book and English translation of the said chit placed at p. 45 of the supplementary paper book. It is pertinent to repeat that the learned counsel appearing for the assessee has admitted before us that the said paper was found from the possession of the assessee during search and contents mentioned in the said sized paper relate to the assessee. He does not dispute that the assessee was the owner of the said paper and the contents thereof relate to him. A careful reading of the said paper clearly establishes the assessee's association with Mr. R.D. Mehta in relation to NRE transaction/gift. The learned counsel himself content that the content 27.50 should be taken as Rs. 2,75,000. This is only an isolated instance of one transaction, which was recorded in the chit found and seized during the search. The content 27.50 cannot be translated as Rs. 27,50,000 without any further evidence. Further interrogation of concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary thereof and taxes paid on such bogus foreign gifts should be prepared. The fact that large number of these persons who have received such gifts have paid taxes thereon by accepting that such gifts are bogus will support the view of the AO in sustaining the addition in respect of unexplained capital invested by the assessee and commission income derived by them from such illegal activities. (b) The AO should examine some of those persons who have admitted such gifts to be bogus gifts and who have paid taxes thereon in the presence of the assessee and find out as to who are the real persons who arranged such bogus gifts from such NRE a/cs. And how much premium/commission was paid by them. (c) It may also be relevant here to mention that the Tribunal, Pune in various cases have sustained inter alia, an addition at the rate of 10 per cent of such bogus foreign gifts such as in order dt. 8th March, 2002 in ITA No. 789/Pn/2000 and others and in other dt. 10th June, 2002 in ITA No. 464/Pn/2002. The facts, material and discussions made in those orders of the Tribunal may also be kept in view. (d) Mr. R.D. Mehta should be examined in the presence of the assessee in respect of variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendment made in the relevant provisions with retrospective effect. The proviso (b) to s. 158BC now provides that the AO shall proceed to determine the undisclosed income of the block period in the manner laid down in s. 158BC and the provisions of s. 142, 143(2)(iii), 144 and 145 of the Act so far as may be applicable. The resort to estimation as per s. 145 based on the incriminating documents and material found during the course of search by invoking s. 145 may be justified in view of the facts and circumstances of the case. (k) It may also be imperative to prepare a peak statement of all the bogus NRE a/cs with various banks in the names of all the concerned persons, from whose accounts bogus gifts cheques/DDs have been given. Such peak amount will be the minimum amount invested by the assessee for running such racket of giving bogus gifts out of bogus NRE a/cs in view of his statements before FERA authorities and AO referred to hereinbefore. Such clear and categorical statements made before Enforcement Directorate at the time of search and re-affirmed once again after two years before the AO (unless successfully rebutted by assessee) coupled with the admitted contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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