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TMI Blog1998 (5) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... certain assets, account books and other documents, etc., were found and seized. The assessments of the present appellants were completed by the learned Assistant Commissioner of Income-tax, Circle II (1), Lucknow vide separate orders, both dated 22-9-1997, with the previous approval of the Commissioner of Income-tax ('Commissioner' for brief), Lucknow. Both sides agreed before us that the issues involved in the case of Dr. Sanjay Mehrotra are exactly the same as in the case of his father, Dr. R.M.L. Mehrotra, the other appellant before us, excepting that there is an additional ground in the case of the senior Mehrotra, relating to an addition of 25,000, and as such the submissions made by them in case of Dr. R.M.L. Mehrotra shall mutatis mutandis apply to the other case, without the requirement of any additional arguments. The appeal of Dr.R.M.L. Mehrotra, viz, I.T.A.No.1327 (All.)/ 1997 is, therefore, being taken by us first. 3. The ground at Sl. No. 1.1 challenging the validity of authorisation of search under section 132 of the Income-tax Act was not pressed for hearing. 4. The grounds at Sl. Nos. 1.2 and 1.3 challenging the validity of the notice issued by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f being understood and complied with inasmuch as, inter alia, it clearly gave the name of the person to whom it was issued, enjoining upon him to prepare a true and correct return of his total income including the undisclosed income and thus making its intent and purpose very clear. Further, in this case, the assessee was evidently and undisputably an 'individual' and as such it had to be infer-red that the notice was meant for him in his individual capacity. According to Shri Agrawal, the maximum defect that could possibly be seen in this notice is that the various strokes from 'HUF' to 'local authority' were not struck off. He submitted that even if this were to be taken as a defect, such a defect being purely of form and not of substance would not invalidate the notice much less the assessment, taking into consideration the express provisions of section 292B of the Act. He relied on the decision of the Punjab and Haryana High Court in Swaran Kanta v. CIT[1989] 176 ITR 291/44 Taxman 68. 6. In reply, Shri Garg submitted that simply because Chapter XIV is captioned as 'Procedure for assessment' and Chapter XIV-B as 'Special procedure for assessment of search cases', the entire pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which you as individual/ HUF/firm/company/AOP/body of individuals/local authority are assessable for the block period mentioned in section 158BC(a) of the I.T. Act. 1961. The return should be in the prescribed Form No. 2B and be delivered in this office within 16 days of service of this notice, duly verified and signed in accordance with the provisions of section 140 of the Income-tax Act, 1961. Sd. Assessing Officer Assistant Commissioner of Income-tax, Inv. Cir., Lucknow. Name :.................................... Designation:............................. 9. Critically examining the contents of the notice, we are inclined to take the view that one cannot say that he was prevented or misled to understand the real purport and directive contained in the notice about the filing of the return as envisaged therein. In taking this view, we are impressed at least by two important factors. One, that the search under section 132 was conducted in the case of assessee in his individual capacity, which fact is not in challenge in any manner. That being so, 'such person' within the meaning of sub-section (1) of section 158BC, who could be called upon to file the return woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued under section 158BC(a), has made a material difference. We have, therefore, no hesitation in saying even at the cost of repetition, that but for the non-striking off of the words 'HUF/............. local authority', there is no other lacuna or confusion in the language of the notice, which was not only well understood by the assessee, but also duly complied with. In our considered opinion, in such circumstances, the defect, if any, in the notice under section 158BC(a) was curable under section 292B, as is submitted by the Ld. Senior Standing Counsel on the strength of Punjab and Haryana High Court decision in the case of Swaran Kanta. It is also worth while to mention that neither the Act nor the Income-tax Rules have prescribed any particular format for the notice under section 158BC(a) of the Act. 12. In the result, we are unable to fall in agreement with any of the contentions advanced by Shri Garg on this particular point and proceed to take up other grounds. 13. The next challenge covered by the following three grounds relates to approval granted by the learned Commissioner under section 158BG of the Act: "2. Because on a due consideration of overall facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were nullity and could not be upheld. As against this, the other view of the Bangalore Bench in the case of Kirloskar Investments Finance Ltd. v. Asstt. CIT [IT Appeal No. (SS) A. No. 88 (Bang.) of 1997 dated 4-3-1998] (copy placed before us) is to the effect that since the provisions of section 158BG of the Act nowhere speak about the grant of any opportunity to an assessee, the implementers of the Act cannot assume such power by any means. While expressing this view, the Bangalore Bench has taken into account the beneficial view of the Chennai (Madras) Bench. Shri Garg submitted that the controversy in the matter apart, since in the present case, there existed a note of the predecessor Commissioner, in the interest of equity and justice, it was incumbent upon the successor Commissioner to grant the assessee and opportunity of being heard before according approval to the assessment which was at variance with his predecessor's note. This fact, according to the learned Counsel for the assessee also showed non-application of mind by the Commissioner, who granted the approval under section 158BG of the Act. 15. The learned Senior Standing Counsel, vehemently opposing, submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice note in the file of the Commissioner and the language used in the approval letter (copies placed at pages 5 and 6 of the aforesaid Paper Book). 17. We have considered the matter carefully. We would firstly like to dwell upon the note dated 11-6-1997 recorded by the predecessor Commissioner. Before dealing with the merits, we would like to point out that it does not appear to be indicated by any material or evidence on record that any opportunity of hearing was granted by the Commissioner to the assessee. We say so mainly on the premise that the note in question is totally silent on this aspect of the matter and the assessee could not demonstrate it before us in any manner that the predecessor Commissioner had granted any hearing to him. The note in question, after we have gone through it, could only be said to have been recorded for issuing guidelines to the Assessing Officer in the completion of the assessment. Considering the second aspect of the matter as to whether there has been any violation of the directions contained in this note, it may be stated that it does not appear to be necessary to go into this aspect of the matter for the most important singular reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions given by yourself from time to time. If approved, the draft orders may be approved. Put up for your approval and directions please.' It is, inter alia on the basis of the above note that Shri Garghas submitted that the approval by the learned Commissioner was wholly routine and without any application of mind, rendering the assessment unacceptable and untenable in law. Shri Agrawal, opposing, submitted that the communication sent by the Commissioner, Lucknow on 22-9-1997 suggested that there was an application of mind on his behalf. In the alternative, Shri Agrawal also frankly submitted that in case the Tribunal took the view that this was a case of non-application of mind by the learned Commissioner, in view of the law laid down by the jurisdictional High Court in the case of Sardar Harinder Singh, the matter could, be remanded back to him for reconsideration. 17.2 Proceeding from the point we left in the foregoing paragraph, after the Officer in the Office of the Commissioner of Income-tax, Lucknow, submitted his note on 22-9-1997, the learned Commissioner conveyed approval by his letter of the same day, copy available at page 6 of the Departmental Paper Book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessees to have embezzled part of their receipts and that it did not in any manner, convey, much less, prove any suppression or omission on the part of the assessee in showing the receipts. The assessee further explained the entries by classifying them into three Groups, detailed working of which has been placed before us in the form of pages 120-139 of the Paper Book. 21. Before we advert to the details of these, three Groups, it would be relevant to refer very briefly the working of the assessee-doctors in the matter of receipts by them, as explained before us. According to Shri Garg, after a patient went to Clinic for some pathological test, either he would be making the whole payment and collecting his reports after they were ready or he would be making part payment at the time of the examination and balance paid at the time of collection of the reports. There was yet a third category of persons who, through made certain part payment at the time of examination, but never turned up to collect the reports and in such cases, the question of balance payment never arose. 22. Proceeding to refer to the quantification of the three types to receipts made by the assessee, Group I, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, hold that the assessed has suppressed the receipts by about 19% of the disclosed receipt during the F.Y. 95-96. The suppression of receipt and in result of income, thus, comes to Rs. 6,16,004 being 19% of gross turnover of Rs. 32,42,129 shown by the assessee. 23. Vehemently assailing the addition in question, Shri S.K Garg, learned C.A. submitted that there was no factual and/or legal justification fee making it. According to him, the document it 'B- 1 /23' did not in any manner, represent a diary or 'recording of the daily transactions as such' by the assessee. It was only a compilation made by the assessees with a view to note the extent of embezzlement made by their employees, which - stand has been taken by them right from the very beginning, as was evident from their reply dated 20th August, 1997 to the Assessing Officer, copy available at pages 103 to 113 of the Paper Book. In this connection, reliance was also placed by' Shri Garg on the affidavit and statement of Shri Shiv Sagar Dixit, an old employee of the assessee, copies of which are available at pages 118-119 and 114-115 respectively. Shri Garg further submitted that insofar as receipts of Rs. 6,670 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le year on the strength of the 19% formula adopted by him as set out above. 24. Opposing, the Ld. Senior Standing Counsel submitted that insofar as the two amounts of Rs. 6,670 and Rs, 85,820 are concerned, the moment the amounts were received by the assessee, although through their employees on their behalf to which there was no dispute, applying any principles it cannot be said that they were not their receipts. According to him, these amounts were firstly to be treated as the assessees' receipts and it was only thereafter that if they succeeded on facts and in law to prove its embezzlement that the same could be reduced from their income. Admittedly, there being not an iota of evidence or material to prove the so called embezzlement, except the bald statement of the assessees, Shri Agrawal submitted that no benefit could go to them on this count. In support, he placed reliance on a decision reported in Haji Lal Mohd Biri Works v. CIT [1982] 134 ITR 718/[1981] 6 Taxman 228. Supporting the multiplication of the undisclosed income on the strength of 19% formula, Shri Agrawal submitted that there was nothing illogical in it. In this connection, he placed reliance on a decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of Rs. 72,915 cannot be made worked out. In view of the foregoing, an inference against the assessees can be drawn for not showing receipts to the tune of Rs.92,490 only as against the amount taken by the Assessing Officer at Rs.1,65,035. 26. Now passing on the multiplication formula adopted by the Assessing Officer, we find ourselves unable to accord our nod to it. In the first place, one should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an Assessing Officer. It is for this reason that the ratio of the Apex Court decision reported in the case of H.M Esufali H.M Abdulali would not come to the rescue of the Department, as there it was a sales tax matter and a best judgment assessment was required to be made. The material that the Sales-tax Officer was possessed of was the figure of 19 days sale by the assessee not entered in their books of account. The Summit Court held that in such situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to an amount of Rs. 18,778. Addition for the entire reminder of Rs. 25,000 was made in the case of the assessee. 30. The assessee's contention is that the explanation should have been accepted with regard to the whole of the amount, while Department supports the view taken by the Assessing Officer. 31. On a careful consideration of the matter, we would only say that the doctor trio as per the assessment, is Pathologist of repute, running a Pathology Clinic in the capital town of Uttar Pradesh. This being so, availability of cash of Rs. 43,778 with the family of three doctors running a flourishing professional concern, cannot be viewed either as unusual or abnormal. We see no reason to disbelieve the assessee on this count and delete the addition of Rs. 25,000. I.T.A. No. 1325 (All) of 1997. 32. AU the facts, questions of law, submissions of both sides and findings recorded by the Tribunal (excepting on the addition of Rs. 25,000) applying mutatis mutandis to the present case, we direct that the addition in the hands of the present appellant be also worked out to a part of the total addition of Rs. 92,490 being sustained by us in the same manner as in the case of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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