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TMI Blog2012 (3) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... of the diary being written in the hand of ‘RC’ and found in his premises during the course of search; in our view, such inferences are shaky and have no legs to stand except creating a suspicion. (iv) The statutory presumption u/s 132(4A) has been raised against RC and addition confirmed in his hands by block assessment u/s 158BD. (v) The assessee had withdrawn from the firm M/s Dev Yogi Developers in April 1997 and RC was search on 4/5 Sept. 1997. Assessee on all forums contended that he was not comfortable with the partnership, which is corroborated by the fact that cheques issued by RC bounced. On measures of preponderance of probabilities also the statement of RC which is not even believed by his AO, cannot implicate the assessee without there being a corroborative evidence. There cannot be a protective assessment on the basis of above assumptions and facts with a bald direction that if the addition is not made in the hands of RC, the same should be added in the hands of the assessee. (vi) On framing of protective assessment u/s 143(3) also the argument of ld. counsel merits credence. The special provisions of the Act prescribe an assessment based on searched material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after nine years without giving any plausible reasons for delay. 5. Ld. counsel for the assessee, in reply, contends that the first legal additional ground in question goes to the root of issue about the assessability of this amount u/s 143(3). A legal ground, which challenges the validity of assessability can be raised at any time during the appellate proceedings, as held by Hon ble Supreme Court in the case of NTPC (supra). The judgment does not prescribe any time frame for raising such legal ground, which goes to the root of the proceedings. In view of Hon ble Supreme Court judgment, ITAT may be pleased to admit this additional ground. 5.1. Apropos second ground, it is pleaded that the same was raised before CIT(A) also, but has not been decided by CIT(A). Assessee inadvertently failed to raise this ground in the memo of appeal before ITAT. 6. We have heard rival contentions and gone through the relevant material available on record. Addl. Ground no. 1, as raised by the assessee, is purely legal in nature and goes to the root about assessability of the impugned amount, based on search material, u/s 143(3). The same is purely legal in nature and does not require verifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of any such firm known as Shastri Ji Construction. Vide this office letter dated 10-03-2000 addressed to Sh. Kapil Dev he was required to explain the following: During the year under consideration, you are a partner with the firm M/s Dev Yogi Developers. As per the return of income filed by you, you have shown investment of ₹ 50 lacs in the said firm. However, an information has been received from DIT(Inv.), Bombay that during the course of search at the residence of Sh. Ramnik Chawda at 204, Kashi Bhawan, Dixit Road, Ville Parle, Bombay on 4/5th Sept. 1997, certain incriminating diaries/ note books have been found and seized. The same indicate that you have entered into an agreement for partnership with Sh. Ramnik Chawda and Mrs. Meena Chawda in the firm M/s Dev Yogi Developers on 27th November 1996. The partnership has been made effective from Ist day of Sept. 1996. The seized diary shows the amounts received in cash and cheques under the name Sh. Kapil Dev. Sh. Ramnik Chawda, during the course of interrogation has stated that the amounts represent the receipts from Sh. Kapil DevNikhanj. He has further stated that he received total amounts of ₹ 1.33 crores from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopments took place in the month of April, 1997 and Sh. Ramnik Chawda was searched in the month of September, 1997. The AR of the assessee has stated that since the assessee has already withdrawn from the partnership and was not having any dealing whatsoever with the said person, he has not paid any amount beyond ₹ 50 lacs. The contention of the assessee has been carefully considered but the same does not carry any weight in view of the fact that Sh. Ramnik Chawda has noted down the receipts from various persons on different pages and drafts sent by the assessee are entered on the dates mentioned therein then why not the amounts paid in cash and entered on the same page on different dates, be note treated as the investment of the assessee. Since Sh. Kapil Dev has not been able to explain the source of this investment, a sum of ₹ 83 lacs is treated as his investment from undisclosed sources. It may however, be stated that these cash credits have also been added in the block asstt. Of Sh. Ramnik Chawda on substantive basis the addition in the hands of the assessee is being made on protective basis. 7.1. Aggrieved, assessee preferred first appeal on the issue in que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as genuine, then why the cash deposits which appear in the same account on the same page and during the same period should not be treat ed as genuine. The appellant cannot treat a part of the document as correct and reject the other part as bogus. After all it is not denied that the appellant had entered into business transactions with Ramnik Chawda. If he made investments of ₹ 50 lakhs by cheques then it can be legitimately inferred that he made the cash investment of ₹ 83 lakhs also. As regards ld. counsel s plea that no evidence of these investment was found during the course of search at the appellant s premise, I do not find any merit in the plea. Ramnik Chawdawas search in 1997 and the appellant was search in 2000. After a time gap of four years, it cannot be expected that the appellant would be preserving the evidence about these transactions with Sh. Chawda which he had already disowned. The question as to why Sh. Ramnik should be making some correct and some false entries in his diary against the name of the appellant, who is a celebrity and if he has really done so, why the appellant has not taken any legal action for falsely implicating his name, rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change in procedure and items of assessability by Chapter XIV-B inserted as Special Procedure for assessment of search cases . The relevant provisions of Chapter XIV-B incorporated on the statute book w.e.f. 1-7-1995, are as under: Assessment of undisclosed income as a result of search. 158BA(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any persons, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. [Explanation - For the removal of doubts, it is hereby declared that - (a) The assessment made under this Chapter shall be in addition to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent u/s 158BC. The consequent addition emerging from this search material in the hands of a third party i.e. assessee was mandatarily to be completed u/s 158BD. This specific procedure of block assessment proceedings is enacted on the statute book with a clear non-obstinate clause of sec. 158BA(1): 158BA(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter. 9.4. Ld. counsel thus pleads that RC s AO, Mumbai has clearly referred to and considered the impugned search material and made this very addition in RC s block assessment order. In these circumstances, this addition, which is based on a search material, could have been considered only by way of block assessment u/s 158BC and not u/s 143(3). Reliance is placed on the following judicial pronouncements for the proposition that when a special procedure of assessment is prescribed, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income as a result of search. Under section 158BB(1), read with section 158BC of the Income-tax Act, 1961, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under section 143(3). This exercise under section 143(2) and (3) for regular assessment stands in contrast to the exercise of the Assessing Officer under section158BB read with section 158BC(b), where he has to asses only the undisclosed income of the block period on the basis of the evidenced found and material available as a result of search conducted under section 132 of the Act. The regular assessment is to assess the total income or loss of the previous year where a return is filed under section 139 and the Assessing Officer considers it necessary or expedient under section 143(2) to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid tax in any manner. (iv) Manish Maheshwari Vs. ACIT Another (2007) 289 ITR 341 (SC). 9.5. Thus the AO, Mumbai in the case of RC having referred to and relied on this material, in case it reflected asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to carry forward the protective finding. Reliance is placed on Hon ble Allahabad High Court judgment in the case of Smt. Hemlata Agarwal Vs. CIT (1967) 64 ITR 428 (All.) to this effect. (ii) Therefore, the assessee s fate cannot be mechanically linked with a third party proceedings, which are not in control of the assessee. (iii) The assessee retired from the said firm M/s Dev Yogi Developers w.e.f. 20-4-1997, his capital of ₹ 50 lacs purportedly returned by Shri Ramnik Chawda by two cheques. The uncomfortable relations between them are revealed by the fact that cheques issued by RC bounced and assessee is yet to receive the capital itself. The search took place in the premises of RC on 4/5 Sept. 1997 i.e. subsequent to the assessee s withdrawal from the said firm. Diary found from the premises of RC was maintained by him in his own hand-writing and added in his block assessment u/s 158BC. It is evident from the record that relationship between RC and assessee had turned sour, therefore, a post retirement statement given by RC estranged partner, cannot bind the assessee without any corroborative evidence. The assessee cannot be held answerable or responsible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iently making untenable additions in regular assessment u/s 143(3). 9.12. Diary has been seized not during the continuity of the partnership firm M/s Dev Yogi Developers but after assessee s withdrawal of participating from the said firm. The diary has been written by RC , his AO has preferred to make this addition by way of block assessment in his hands. No addition is contemplated by AO in the hands of the said partnership firm M/s Dev Yogi Developers or assessee. If assessee had given any cash amount to partnership firm, then the firm should have acquired some assets or maintained some record. The impugned protective addition based on assumptions, presumptions, surmises and conjectures and against the procedure prescribed by law, deserves to be deleted. 10. Ld. DR, on the other hand, contends that provisions of Chapter XIV-B do not prohibit the use of material found during the course of search of any other person in regular assessment. If the AO independently comes in possession of some material indicating that it pertained to other person, the same can be used in his assessment. In this case, AO came in possession of material from DIT (Inv.), Delhi, provided by Investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the DIT(Inv.) Mumbai has had no satisfaction that impugned diary represented undisclosed income of the assessee and therefore, no reference was made by him to AO, Delhi for initiating block assessment proceedings u/s 158BD in the case of assessee. (iv) The impugned diary being a seized material was examined in the RC s block assessment and cash credits were added as undisclosed income in the hands of RC. The examination of seized diary and addition in the hands of RC is not disputed by the department. The assessee was heard during the course of 158BC proceedings of RC. 11.1. The main question which thus arises before us is - if it all the seized material represented undisclosed income of the assessee, whether the procedure prescribed by sec. 158BD was to be mandatorily followed and having failed to do so, whether the material could be used by AO in regular assessment u/s 143(3), by going beyond - i) Chapter XIV-B; and ii) findings given by DCIT(Inv.), Mumbai. . 11.2. The legislature w.e.f. 1-7-1995 enacted a special procedure for assessment of undisclosed income on the basis of seized material found during the course of search. Procedure was devised firstly to impose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Bombay High Court in the case of Dr. M.K. E. Menon and by Hon ble Gujarat High Court in N.R. Paper Board Ltd. others (supra). A similar view has been upheld by Hon ble Supreme Court in the case of Manish Maheshwari (supra). In view of above, we are of the view that the impugned addition of ₹ 83 lacs cannot be made in the hands of the assessee on protective basis by taking recourse to sec. 143(3). Thus, the additional ground of the assessee is allowed. 11.5. The appeal is very old, filed way back in 2002. Therefore, we would like to decide the merits of the addition. It emerges from record that: (i) Assessee s stand was examined in the course of block assessment of RC, there also he denied having any connection with the diaries cash entries made in the handwriting of RC. (ii) During the course of search in RC s premises and in subsequent search of the assessee s premises, no corroborative incriminating evidence was found to suggest such cash payments or assets of said firm M/s Dev Yogi Developers. . (iii) Lower authorities have solely relied on various uncorroborated evidence including the fact that in the diary two cheuqe entries match with assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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