9911796707
TMI Blog1998 (3) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961,on 29-3-1996 and that the search was finally concluded on 23-5-1996. The assessee has tried to draw our attention to several points with regard to different aspects of the search, to which we shall refer at appropriate places. In the assessment order passed by the Assessing Officer on 30-5-1997, the Assessing Officer states that during the search proceedings it was noticed that the assessee had claimed 100% depreciation on certain assets like Industrial Gas Cylinders, Solar Testing Plant, etc., claimed to have been purchased by the assessee from different parties for a total consideration of 445.30 lakhs. All these assets, were shown by the assessee as having been leased to M/s. Miga Gases (P.) Ltd., and certain other parties, as detailed below: - ----------------------------------------------------------------------- Sl. Name of the Name of Invoice Invoice Nature of No. supplier the Lessee Date Value &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Engg. (P.) capacitors (P.) Ltd., Ltd. B'lore B'lore 7. Akshay Tejus Solar 9-9-1994 2800000 Solar Engineering, (P.) Ltd.,Total Testing B'lore B'lore Plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer that any undisclosed income had already been disclosed in the returns of income filed by the assessee before the commencement of the search, lay with the assessee. It was, however, not at all mentioned as to what exactly constituted undisclosed income of the assessee. 4. In response to the said letter, the assessee filed a letter dated 31-8-1996 submitting that since no valid search and seizure proceeding had been effected in the case of the assessee under section 132, the assessee was not liable for filing the return under section 158BC. In the said letter, it is found to have been mentioned by the assessee that all entries/transactions found in the seized materials were transactions which had been carried on by the assessee during the course of its regular business through the banking channels and that the same had also duly been recorded in the regular books of account of the assessee which had again duly been audited by the statutory auditors. The letter also mentioned that no undisclosed article or thing was found out by the Deptt. during the course of search and seizure proceedings in the premises of the assessee. The Assessing Officer issued another letter on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough M/s. Miga Gases (P.) Ltd., as lease rental advances, after retention of the commission of Sri Krishna Mohan for having accommodated the transactions. It was stated therein that copies of the statements recorded from the above persons would be shown to the assessee at the time of hearing. It is worth mentioning in this connection that no papers containing the aforesaid statements of Sri Krishna Mohan prior to 8-10-1996 were brought on record by the Assessing Officer or relied upon by him in the assessment order or even supplied to the assessee also. It is also worth mentioning in this connection that apart from the four lease transactions with M/s. Miga Gases (P.) Ltd., mention of no other lease transaction of the assessee, was made in the aforesaid letter dated 8-10-1996. In response to the aforesaid show cause letter, the assessee filed a letter asking for time. On 11-11-1996 again, the assessee filed a further letter in which the genuineness of the lease transactions was asserted on the ground that the purchase of the cylinders and also the lease transactions stood evidenced by legally enforceable documents like invoices, delivery notes, agreements, inspection certificates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. In the said letter again, it was stated by the Assessing Officer that during the investigations conducted by the Deptt., it had been found that both M/s. DDK Industries and M/s. M.M Industries were non-existing and non-operational during the relevant period, i.e., 1992-93 to 1995-96, and also that the concerns/their proprietors/partners were not traceable. It was furthermore mentioned that Sri Krishna Mohan, the Managing Director of M/s. Miga Gases (P.) Ltd., had categorically denied the receipts of any cylinders either from M/s. DDK Industries/MM Industries or from the assessee on account of the lease transactions with M/s. Miga Gases. Reference was also made to a letter of Sri Krishna Mohan dated 14-2-1997 in which it is said to have categorically been stated by Sri Krishna Mohan that all the lease transactions entered into between M/s. Miga Gases (P.) Ltd., and the various lessors based on invoices of M/s. DDK Industries/ MM Industries, were also bogus and non-genuine and that accommodation in that regard had been given at the specific request of the assessee. Sri Krishna Mohan was also stated in the said letter to have admitted that all the cylinders which had been claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te thus removing any iota of doubt about the genuineness of the transactions and that the letter of Sri Krishna Mohan could not be relied upon and in any case was not binding on the assessee. The assessee also wanted the Assessing Officer to summon under section 131, a large number of parties like the proprietors of M/s. DDK Industries/MM Industries, Commercial Tax Officers in respect of M/s. Miga Gases, M/s. DDK Industries and M/s. MM Industries, etc., financial institutions certifying genuineness of the financing arrangements, and the private consulting party M/s. Ramba Hydrogen (P.) Ltd., which had conducted a survey and issued inspection certificate, the Chartered Engineers, M/s. Bhusan Associates which had also issued inspection certificates, the Chartered Accountants M/s. Prabhat P. Bhat & Co., which had also issued an inspection certificate regarding the cylinders and also the bank officials of the banks in which the cheques had been encashed by M/s. DDK Industries, M/s. MM Industries, M/s. Tejus Solar (P.) Ltd., etc. The assessee also stated therein that once the verification of the above persons would be completed, the assessee would request the Assessing Officer to summon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly filed in the office of the Assessing Officer on 21-3-1997. In this letter also, the assessee reiterated its earlier stand about genuiness of the lease transactions. It was furthermore stated therein that the assessee was neither the supplier nor the dealer of the equipments leased out and that the essential function of the assessee in the capacity of the lessor of the lease transactions was to purchase the equipments selected by the lessee, from the supplier who had been designated by the lessee. The entire transaction was, therefore, at the instance of the lessee and the function of the lessor was merely to provide the necessary finance and obtain ownership of the assets leased. The assessee also once more asserted that it had information on reliable authority that the assets had been found at the time of search in the premises of the lessee and that the same had duly been recorded by the search party visiting the lessee's place. The assessee wanted the Assessing Officer to enable it to read the documentary evidences like copies of panchanama, etc., in the case of the search of the lessee. The assessee also objected to placing any reliance on a truncated statement of Sri Krish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. A copy of the aforesaid letter of the proprietrix of M/s. Akshay Engg. was only supplied to the assessee. The Assessing Officer stated that with regard to the lease transaction with M/s. Savik Vijai Engg. (P.) Ltd., the efforts to trace the existence and the genuiness of the so-called supplier, viz., Vishaka Electricals (P.) Ltd., had been in vain, indicating the non-genuineness of the transaction. It was furthermore stated that similarly in case of the lease agreement with M/s. Tamil Nadu Air Products Ltd., based on the purchase invoice from M/s. Tamil Nadu Oxygen, there had been no response from these two concerns to the enquiry letters sent by the Assessing Officer to them. The Assessing Officer also mentioned that in all the above lease transactions, the amounts paid by the assessee to the so-called suppliers had come back to the assessee through the concerned so-called lessees in the form of lease rental advance deposit which was about 85% of the payment made by the assessee. The Assessing Officer stated that this clearly indicated that there was a collusion between the assessee, the so-called suppliers and the so-called lessees. The Assessing Officer further mentioned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was being posted for hearing on 21-5-1997 at 10.30 AM and furthermore that in case of failure of the assessee on that date, the case should be treated as being reposted on 26-5-1997 at 10.30 AM as another opportunity. Separate summons to Sri Pradeep Kar, MD of the assessee-company was also enclosed for compliance. 13. On 26-5-1997, the Managing Director and also the representative of the assessee appeared before the Assessing Officer. Although the Assessing Officer states that after detailed examination and verification, the assessment was completed, actually however, the assessee is found to have filed a written correspondence dated 26-5-1997 with the Assessing Officer. In the said correspondence, the assessee reiterated its stand as discussed above. The assessee mentioned therein that the significance of confirmation certificates after 1-10-1996 was not being understood by it. The assessee placed reliance on the sworn affidavits, copies of which had already been supplied by it to the Assessing Officer. Regarding physical verification of the assets, the assessee said, as below, in the said correspondence: "Regarding physical verification of the leased assets, you may k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the account of lessee which again ultimately comes back to the lessor, i.e., the assessee by way of lease rental advance. There would be brokers mediating the process. The Assessing Officer goes on discussing further that there would be a tacit understanding amongst all the parties that once the lease is finalised and 85% of the purchase amount is received by the assessee towards advance lease rentals/deposits, there would be no further liability of any kind amongst the parties. The difference of 10-15% left with the supplier would be withdrawn in cash and would be shared by all the parties concerned at various ratios depending upon their respective bargaining capacities. The Assessing Officer discusses, thereafter, that the above modus operandi clearly proves that the entire lease transaction is collusive and fraudulent entered into with the purpose of evasion of tax or reduce the incidence of tax, that no actual assets involved in the lease transaction, that all the documents like invoices, delivery notes, lease agreements, installation certificates, etc., are merely on paper and do not relate to any actual transactions and also that the lease rental deposit received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions were sham and nothing but paper transactions only without the actual involvement of any such assets; (e) The assessee failed to explain the above position and furnish other evidence as required by the Assessing Officer from time to time to prove the genuineness of the lease transactions. 16. Thereafter the Assessing Officer has tried to analyse each of the lease transactions claimed to have been entered into by the assessee with different parties. Firstly, he takes up the cases of four lease transactions of the assessee with M/s. Miga Gases Pvt. Ltd. He states that during the course of search proceedings in the premises of M/s. Miga Gases Pvt. Ltd., during March - April' 96, its Managing Director Sri Krishna Mohan had categorically said that the lease transactions of M/s. Miga Gases with M/s. Microland were not at all genuine and were merely of the nature of paper transactions entered into for the purpose of accommodation at the specific request of the assessee. This point is exactly the same as what was taken up by the Assessing Officer with the assessee in his correspondence dated 8-10-1996 and as discussed by us above. The Assessing Officer also referred to the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had shown Rs. 41.23 lacs as lease rental receipts as on 31-3-1996 in its books (for which again no details were furnished) and had offered for taxation the same amount in its regular returns filed. However, the Assessing Officer goes on discussing further that as seen from the lease agreements, the total lease rental deposits and finance charges due and accounted as on 29-3-1996 were only Rs. 23,99,493 and not Rs. 41.23 lacs. Hence, the Assessing Officer restricted the claim of the assessee towards deduction of lease rentals to the abovementioned amount of Rs. 23,99,493. Finally, the Assessing Officer disallowed the claim of the assessee towards depreciation, lease rent discounting charges and lease rental receipts. He furthermore discussed that net amount of Rs. 4,02,44,048, i.e., depreciation + interest claims as reduced by the amount shown as lease rentals was being brought to tax as undisclosed income for the three assessment years 1994-95, 1995-96 and 1996-97, in the respective amounts of Rs. 54,82,475, Rs. 50,94,705 and Rs. 2,96,66,868. 17. Thereafter the Assessing Officer took up the case of the lease transaction of the assessee with M/s. Tejus Solar Pvt. Ltd. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded back as undisclosed income of the assessee for assessment year 1995-96. 18. The Assessing Officer thereafter discusses the details of lease transaction of the assessee with M/s. Savik Vijai Engg. Pvt. Ltd. He states that the modus operandi in his case was also the same as in the case of M/s. Miga Gases Pvt. Ltd. The Assessing Officer however does not refer to any admission made by the lessee in this case. On the other hand, he relies on the failure on the part of the assessee to produce the supplier and also the lessee and to furnish fresh confirmation letters as well as to arrange for the physical inspection of the assets by the Deptt. Ultimately, besides disallowing claim of depreciation of Rs. 42 lacs, discounting charges calculated by the Assessing Officer at Rs. 19,23,600 has also been disallowed by him. Ultimately a total amount of Rs. 47,92,200 has been considered by the Assessing Officer as constituting undisclosed income of the assessee for assessment year 1994-95 in respect of this particular lease. 19. The Assessing Officer has dealt with the lease transaction of the assessee with M/s. Tamilnadu Air Products Ltd., exactly in the same manner as in the case of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned above, the appeal should be dismissed by the Tribunal. Rule 10 of the Income-tax (Appellate Tribunal) Rules, 1963 reads as below: "Filing of Affidavits - Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit." In support of his contention that in absence of such an affidavit, the appeal itself is liable to be dismissed in limine. Dr. Krishna has relied on a judgment of Rajasthan High Court in the case of CIT v. Swastik Motors [1992] 195 ITR 368/64 Taxman 555. The said case related to requirements of filing of an appeal before the Income-tax Appellate Tribunal in accordance with Rule 9(1) of the aforesaid Income-tax (Appellate Tribunal) Rules, 1963. According to the said rule, every memo of appeal shall be in triplicate and shall also be accompanied by two copies (at least one of which shall be a certified copy) of the order appealed against, two copies of the order of the ITO, two copies of the grounds of appeal before the first appellate authority and also two copies of the statement of facts filed before the said first appellate authority. In that particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant fails to furnish the required affidavit, the assertion of fact on that particular issue, will naturally have to be ignored by the Tribunal in deciding the relevant issue. Only if the assertion of facts goes at the very root of the appeal, the question of dismissing the appeal in limine, may arise. In the instant case, if we examine the four different points as enumerated by Dr. Krishna in his instant application, we find that all the issues are highly disputed in nature. It is the assertion of the assessee that there was no warrant in the name of the assessee. On the face of the records available with the assessee, such an assertion seems to be warranted. We will come to this issue later on, at the appropriate place and discuss that the assertion of the assessee certainly deserves some merit. The question of completely failing to follow the principles of natural justice, is again a highly debatable issue and both sides have showered heaps of arguments on this particular issue. Furthermore, this is simply an argument taken up by the assessee and not an assertion of fact itself. Regarding the arrangement for physical inspection of the leased assets on 26-5-1997 again, the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... croland Ltd. In the lists/inventory of account books, etc., found/seized also, the name of the person is found to be shown as Sri Pradeep Kar, CMD, M/s. Microland Ltd. On an examination of the relevant papers (copies of the panchanamas, etc.), we find the contention of the assessee to be correct. Therefore we wanted Dr. Krishna, the Departmental counsel, to produce before us the relevant search warrant. After initial hesitations, Dr. Krishna produced before us a photocopy of the said search warrant (original search warrant was never produced before us). The photocopy of the search warrant (which is very hazy) is found to read as below: Whereas information has been laid before me and on the consideration thereof I have reason to believe that: If a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 or under sub-section (1) of section 131 of the Income-tax Act, 1961 or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 or sub-section (1) of section 142 of the Income-tax Act, 1961 is issued to Mr. Pradeep Kar (name of the person) to produce or cause to be produced, books of account or other documents which will be useful for or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Union of India v. Sheo Shanker Sitaram [1974] 95 ITR 523 as pointed out by the learned counsel for the assessee. It was held by the High Court in that case that the claim of privilege by Department in the matter of production of assessment records containing the correspondences between the ITO and his higher official under section 124 of the Evidence Act on the ground of official secrecy is not tenable. A reference may also be made in this connection on a judgment of the Punjab & Haryana High Court in the case of H.L. Sibal v. ITO [1976] 103 ITR 606. It was held in the said case that when claim for privilege is made under section 138 of the Income-tax Act, the matter has to be decided with respect of the public affairs of the state, and that the competent authority which claims privilege must apply its mind to each individual document and also indicate reasons for which the claim for privilege is made. It was furthermore decided in the said case that when an official records is tampered with by its custodian for the purpose of putting forth a false defence, no claim for privilege in respect of such a record can be allowed. In the instant case, we feel that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory, because the very disclosure would affect or hamper the investigations. In this connection, Sri Pradeep appearing on behalf of the assessee-company, has brought our notice to the further discussions made by the Karnataka High Court in that very case at page 63 of the reported judgment, as below: - "The stage for disclosure of the materials is reached only when the Revenue resolves to proceed to make an appropriate order imposing tax liability or penalty, etc., and at that stage, all relevant materials from which the liability of the taxpayer is sought to be inferred shall have to be disclosed." Sri Pradeep strongly argues that even at the stage of framing the assessments also, the departmental authorities did not disclose the actual reasons for conducting the search. Whatever may be the case relating to disclosure of the information about search to the assessee even at the assessment stage, at this stage of appeal before us, at least, the departmental authorities should have placed all the relevant records. The Tribunal would have surely taken care to see that such confidential matters are not divulged to the assessee or any body else. However, non-production of the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch) clearly shows that the search was commenced at 10.20 PM and was closed temporarily at 11 PM on the same date. A bunch of loose sheets (9 in No.) was seized on this date. A prohibitory order under section 132(3) was issued on that day directing restraint on removable of books of account, documents kept in the wooden almirah of the purchase Department of M/s. Microland at the third floor of M/s. Microland House, Koramangala, Bangalore. The panchanama, the inventory of seized materials and also the prohibitory order under section 132(3) were all in the name of Sri Pradeep Kar, CMD, Microland Ltd. Sri Pradeep,the learned counsel for the assessee tried to raise a point that the search conducted at such untimely hours, was beyond any reasonable norms and hence illegal. Dr. Krishna, the learned DR has, on the other hand, placed on our record a correspondence from the ADIT (Inv.) concerned stating the circumstances leading to the delay in commencement of the search. It has been stated therein that originally a survey was conducted in the premises of the assessee and that during the course of the survey, explanation of the Managing Director of the company with regard to certain impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r case, the search operations were resumed on 30-3-1996 at 5 PM and were again temporarily concluded at 7 PM on that day. A fresh panchanama was executed in the name of Sri Pradeep Kar and one bunch of loose sheets with written pages from 1 to 21 was seized on this particular day. In the inventory of the seized materials, the name of M/s. Microland was shown on this day, whereas in similar paper prepared by the departmental authorities on 29-3-1996, only the name of Sri Pradeep Kar, CMD, M/s. Microland Ltd., had been shown. A fresh prohibitory order under section 132(3) was issued on this day also restraining removal of books of account, documents kept in the wooden almirah of Purchase Department of M/s. Microland at the 3rd Floor of Microland House, Koramangala, Bangalore. Finally, the departmental authorities once more searched the premises on 23-5-1996 at 3.15 PM and the operations were finally concluded at 4.45 PM. On this day also, the panchanama was executed in the name of Sri Pradeep Kar. Two bundles of loose sheets containing 26 & 27 written pages were seized on this particular day also. The inventory of materials seized prepared on this day showed the name of Sri Pradeep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court was affirmed by the Supreme Court, however, on a different ground reported at 123 ITR 435. (ii) The Madras High Court held in the case of I. Devarajan v. Tamil Nadu Farmers Service Co-operative Federation [1981] 131 ITR 506 as below: - "In the case of seized assets, there is a specific provision made for seeing that the assets are not retained beyond the period of 90 days after seizure. However, in case of sub-section (3), there is no such time-limit. But the non-specification of time-limit cannot be construed as showing that the authorised officer can subject the assets to attachment for an indefinite period of time. It is not possible to read the time limit in sub-section (5) into sub-section (3) as Parliament has not imposed any such time-limit with respect to sub-section (3) for good and valid reasons. But the provisions of sub-section (3) cannot be utilised so as to continue the attachment indefinitely. (iii) In the case of B.K. Nowlakha v. UOI [1991] 192 ITR 436, the Delhi High Court held that section 132(3) could be resorted to only if there was any practical difficulty in seizing the item which was liable to be seized. The Delhi High Court furthermore stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the proposition as put forward by the learned DR is supported by this particular judgment. On the other hand there is just an obiter at the reported page 382 of the said judgment, as below: - "As it (the question of completion of seizure) is largely a matter of intention and as the intention in this case is clear that the authorised officer did not want to seize the goods on 23rd June, 1971, there is no question of the goods being taken as seized on that date." The High Court certainly did not go into the legal controversies as to whether issue of a prohibitory order under section 132(3) could be considered to be valid and legal. The contention in that regard was also not raised before the High Court. The facts of the present case clearly show that ultimately what seized were a bunch of loose sheets on different dates. It is also a fact that these loose sheets were ultimately not at all utilised for the purpose of making the impugned assessment. No reference has been made anywhere in the impugned assessment order to the contents of any of those loose sheets. In the context of such position therefore, it would not be quite out of place to come to a conclusion that the seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned counsel for the assessee that the formation of the block year itself being invalid, the assessment order based on such block year is also liable to be quashed as invalid. In this connection, we would like to refer to the definition of "block-period" as provided in section 158B, as below: - " 158B. In this Chapter unless the context otherwise requires,- (a) "block period" means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period upto the date of the commencement of such search or as the case may be the date of such requisition;" The learned counsel for the assessee has relied on the following two judgments in support of his contention in this regard that in the absence of a valid block-period, the assessment itself would be invalid. He argues in this connection, that whenever, there is a variation from the normal time-period comprised in the 'previous year', the Act itself mentions the same as in the cases of new business covering less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjust result which could never have been intended by the Legislature, the Court may modify the language used the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction." In this particular case, there cannot be any doubt about the fact that the intention of the Legislature was to define block-period as a period which should in general contain ten previous years in respect of the assessee where such ten previous years were existing and available. Where however ten such previous years were neither existing nor available, the intention of the Legislature is clear enough that only as many previous years as were existing, should be considered to form the block-period. There is a grave danger lying in the interpretation tried to be forwarded on behalf of the assessee in as much as if the assessee's contention be accepted, then no search-assessment under Chapter XIV-B of the Act, can be made in case of an individual below the age of ten years or a firm or a company which has not yet completed ten years of its existence. Such an interpretation would not only be violative of the intention of the Legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions from superior authorities. The Supreme Court held that when the Assistant Commissioner being the higher authority, had already delegated the work of assessment to the lower authority, i.e., commercial tax officer, then it was the duty of the latter to make the assessment order giving his own reasons for doing so. However, the superior authority had directed the lower authority to make the assessment on certain basis without affording any opportunity to the assessee of meeting his point of view. Accordingly, the assessment was considered by the Supreme Court to be invalid. It is required to be said in this connection that in the present case with us, the assessment order was passed fully in accordance with the judgment of the Assessing Officer and the CIT(A), while approving the assessment order, did not interfere with the same, not to speak of asking for making any enhancement in the amount of undisclosed income. Hence, the facts of the present case are not compatible with those of this particular case and therefore the Supreme Court decision under consideration will not be applicable to the present case. Next, the learned counsel for the assessee has relied on another judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such rules. The Supreme Court however made a special mention about two fundamental maxims of natural justice which are required to be followed in all judicial proceedings. These two maxims in latin tags are the twin principles of AUDI ALTERAM PARTEM and NEMO JUDEX IN RE SUA. The Supreme Court further emphasised that AUDI ALTERAM PARTEM is a highly effective rule devised by the courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power. A further discussion was made therein about two facets of this maxim viz., (a) notice of the case to be met, and (b) opportunity to explain. The Supreme Court furthermore discussed that the rules of natural justice can operate only in areas not covered by any law validly made and that they can supplement the law but cannot supplant it. The Supreme Court furthermore discussed that if a statutory provision either specifically or by inevitable implications excludes the application of the rules of natural justice, then the Court cannot ignore the mandate of the Legislature. However, difficulties arise when the statute conferring the power does not expressly exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition, Dr. Krishna has relied on a host of decision as detailed below: (i) Dinshaw Darabshaw Shroff v. CIT [1943] 11 ITR 172 (Bom.) at page 176. (ii) Raja V.V.V., R.K. Yachendra Kumar Rajah of Venkatagiri v. ITO [1968] 70 ITR 772 (AP). It was held in this particular case that assessment proceedings are quasi-judicial in nature and while making assessments, the ITO is solely to be guided by the provisions of law. No administrative instructions or directions can be given to him by the higher authorities in the matter of framing of the assessment. (iii) Elphinstone Picture Palace v. Union of India [1969] 74 ITR 115 (Cal.) (iv) Sheo Shankar Sitaram's case (v) J.K. Synthetics Ltd. v. CIT [1972] 83 ITR 335 (SC). Thereafter, Dr. Krishna has referred to certain other decisions, as discussed below to prove his point that while according an administrative approval with regard to certain matters, under the Income-tax Act, an opportunity of hearing to the assessee is not necessary. Firstly, he relied on a judgment of the Lahore High Court in the case of Lachhman Das Mehr Chand v. ITAT [1944] 12 ITR 432. In that particular case, it was held as below: - "Sec. 28(6) of the Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of such judgments are being given below: - (i) SP (CBI) v. Deepak Chowdhary [1995] 6 SC 225. The matter related to granting of sanction for prosecution under the Prevention of Corruption Act, 1947. The Supreme Court held that the grant of sanction is an administrative function and that what is required is that the investigating officer should place all the necessary materials before the sanctioning authority which should apply its mind to the materials and accord sanction. The Supreme Court thus ultimately held that the question of giving opportunity of hearing to the accused before granting sanction does not therefore arise. (ii) Sultan Singh v. State of Haryana [1996] 2 SCC 66. It was held by the Supreme Court in this case that a Government order making reference of industrial disputes under section 10 of the Industrial Disputes Act is an administrative and not a quasi-judicial order, based on subjective satisfaction of Government. Therefore, no lis is involved. Recording of reasons was held by the Supreme Court to be required by the statute only in case of order refusing to make the reference and not in case of order making the reference. (iii) State Bank of India v. S.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 249 (Raj.). The issue involved was procedural irregularity in an order required to be passed under section 144B of the Income-tax Act read with section 144A. It was held by the High Court that the Tribunal was right in restoring the matter back to the IAC to proceed afresh. (iii) G.R. Steel & Alloys (P.) Ltd. v. CIT [1985] 152 ITR 220/17 Taxman 29 (Kar.) In this case, an assessment as a result of which there was a variation in the income or loss returned exceeding Rs. 1 lakh, had been completed without following the prescribed procedure. It was held by the High Court that non-compliance is only a procedural irregularity and will not render the assessment as ab initio void. Direction to the ITO to redo the assessment after following the prescribed procedure was considered by the High Court to be valid. (iv) Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC) On account of no opportunity of being heard having been afforded to the assessee in penalty proceedings validly initiated, it was held that setting aside the order imposing penalty with a direction for continuation of the proceeding from the stage of notice, was valid. (v) Prabhudayal Amichand v. CIT [1989] 180 ITR 84/44 Taxman 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al justice of the nature of AUDI ALTERAM PARTEM. We are inclined to agree with the arguments of Dr. Krishna that the provisions for according approval to assessment orders to be passed in case of search and seizure assessments, were introduced mostly for the purpose of allowing the Commissioners to monitor the search and seizure cases in a legal manner. But for this provision, any interference on the part of the Commissioners, even to oversee how the search and seizure assessments are progressing, might have been considered as illegal and invalid. It does not appear that the Legislature intended that the Commissioner should play an appellate or revisionary role while according such approval excepting where the proposed assessment is based clearly on unrealistic, unfounded and capricious views and findings of the Assessing Officer. What the Commissioner is required to see while approving the proposed assessment orders in search and seizure cases is that whether all the materials collected during the search have properly been taken care of and also utilised in framing the assessment and whether the assessment, on the basis of materials on record, can be considered to have satisfactor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an opportunity of being heard to the assessee at the stage of according the approval, did not constitute denial of the principles of natural justice. Hence, we reject this particular ground taken by the assessee. 26. The last preliminary objection of the assessee against the validity of the impugned assessment order impinges on the consideration of undisclosed income for the purpose of the search and seizure assessment under appeal. It is the contention of the assessee that what has ultimately been assessed as undisclosed income is nothing but disallowance of the claims of the assessee towards depreciation and interest payments. In addition to that some amount has also been added as discounting charges, which was however neither debited by the assessee to its accounts nor even claimed as expenses anywhere. Firstly, it has been argued that disallowance of claims of expenses, or deductions by way of depreciation, etc., cannot be considered to constitute income of the assessee at all, not to speak of undisclosed income. It is not exactly possible for us to accept this particular contention on behalf of the assessee. In this connection, we would like to rely on the discussions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income for the purpose of Chapter XIV-B. Detailed discussions have been made in the said judgment on this particular issue. In addition to the same, it has also been held therein that within the pale of Chapter XIV-B, assessment can be made only in respect of the undisclosed income and such undisclosed income must come as a result of search. It has also been held therein that it is beyond the power of the Assessing Officer to review the assessments completed unless some direct evidences come to the knowledge of the Department as a result of search which indicates clearly the factum of undisclosed income. It would be necessary for us to examine the contentions of the assessee on this issue in the light of this particular judgment. There cannot be any doubt about the fact that during the course of the search, even if it can be assumed that there was such a valid search in the case of the assessee, no money, bullion, jewellery or other valuable articles or thing were found out. It cannot also be said that any entry in the books of account or other documents or transactions were discovered during the search which would evidence that such transactions represent wholly or partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we agree with the contention of the assessee that the addition not actually representing undisclosed income of the assessee discovered as a result of the search, the assessment made under Chapter XIV-B containing such addition must be considered to be illegal, invalid and unwarranted. On this count also, we strike down the impugned assessment. 27. It will now be required of us to look into the claim of the assessee from the merit angle. Lots of discussions have been made by both the sides and many arguments have also been put forward. Both the representatives of the assessee viz., S/Shri Pradeep and Venkatesan have tried to argue very strongly that the ends of natural justice were not met in as much as the departmental authorities used certain materials for disallowing the claims of the assessee without allowing the assessee adequate opportunity to examine and rebut the same. It has been contended that the entire assessment should be quashed on the ground of denial of natural justice as stated above, alone. In support of this contention, reliance has been placed on a number of judgments as mentioned below: - (i) Surajamull Mohta & Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appreciation of the issues in particular. The general contention of the assessee that on account of denial of natural justice, the assessment is liable to be quashed as a whole, seems to be just the opposite of the contention raised by Dr. Krishna that on account of violation of Rule 10 of the Income-tax (Appellate Tribunal) Rules, the appeal should be dismissed in limine. We cannot allow such unreasonable and unrestrained claims on either side. We would therefore take recourse to the procedure of examining each of the additions separately in the light of the evidences available with the Assessing Officer and in the background of whether the assessee had been afforded proper opportunity to rebut such evidences on that particular issue. 28. Dr. Krishna, the learned DR has assailed the claim of assessee towards depreciation even on merits on various grounds. His contentions in the nutshell are that firstly there is nothing on record to show that the assessee was in the business of leasing. He contends on this issue that the business of the assessee is in computer line and the assessee showed some purported leasing transactions. No evidences have been adduced to show that all the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. We agree with such contention. In the case of Rai Bahadur Hardutroi Motilal Chamaria, the Supreme Court was discussing the rationale behind the power of enhancement specifically conferred upon the first appellate authority like the AAC by the statute. In fact, the power of enhancement has specifically been given to an AAC or a CIT(A) under section 251 of the Act. Such a specific power however is not provided under section 254, to the Tribunal. Hence, it would not be possible to extend the arguments as provided by the Supreme Court in the abovementioned case, to the sphere of plenary powers of Income-tax Appellate Tribunal. Again, although it may not be possible for the Assessing Officer to file an appeal against the assessment order in search & seizure cases, once the assessee has preferred an appeal against the same, under the procedures relating to appeals before the ITAT, the Assessing Officer is at liberty to file a crose-appeal even asking for enhancement. The question of enhancement can be considered only with reference to such cross-appeals, if any. In this particular case, the Deptt., has not filed any cross-appeal and therefore the Tribunal cannot enhance the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since the assessee itself did not use the same in its business, they cannot be treated as plants in the hands of the assessee. Sri Venkatesan has in this connection relied on a judgment of the Karnataka High Court in the case of CIT v. Shaan Finance (P.) Ltd. [1993] 199 ITR 409, in which it has been held that the machinery owned by that assessee but given on hire and used by lessee for manufacture of article or thing is entitled to investment allowance. Taking cue from this particular judgment we hold that both the points as raised by Dr. Krishna are met hereby viz., that the cylinders and other equipments were used by the assessee in its leasing business and that they also constitute "plants" in its hands and hence depreciation would be allowable on such assets. 30. We thus come to the basic question as to whether the transactions of the assessee relating to purchase of assets and leasing them out to different parties can be considered to be sham transactions and in that way, the assessee cannot be considered to have become owner of the assets. Sequence of events leading to production of evidences by both sides have been discussed by us in great detail as above. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iratan Cotton Mills Co. Ltd. [1969] 73 ITR 634 (SC) at page 649 (iv) Nund & Samount Co. (P.) Ltd. v. CIT [1970] 78 ITR 268 (SC) at page 272. It was held in the said case that in an inquiry under section 10(4A) of the Income-tax Act, 1922, into the excessiveness or unreasonableness of an allowance resulting in the provision of any remuneration or benefit or amenity to a Director, it is for the taxpayer, to establish by evidence that the particular allowance is justifiable. Thereafter Dr. Krishna has brought our notice to the provisions of various sections of the Indian Evidence Act like sections 101,102,103, 106 and 114 in support of the same proposition that the onus of proving a particular proposition lies on the party who asserts the same. Dr. Krishna has tried to point out certain irregularities or anomalies in some of the evidences furnished by the assessee like some of the certificate being undated, the name of the assessee not appearing in some of them, etc. In support of the claim that both the purchases as well as the leasing transactions were bogus, Dr. Krishna has strongly relied on the discussions made by the Assessing Officer in detail in the assessment order to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this particular matter, for the purpose of disallowing the claim of depreciation to the assessee in this particular case, it was necessary on the part of the Assessing Officer to clearly disprove the said claim by adducing proper evidences to show that both the purchasers as well as the leasing transactions were non-genuine. We find on a thorough examination of the assessment order and also the other materials including the correspondences between both the sides (described in detail) that the only two concrete materials which the Assessing Officer has utilised for disallowing the claim are the letter of Sri Krishna Mohan dated 14-2-1997 addressed to the Assessing Officer and a sworn statement before the Assessing Officer on 26-2-1997 by Sri Krishna Mohan. As discussed by us above, the full text of the letter dated 14-2-1997 was not supplied by the Assessing Officer to the assessee. Only copy of the sixth page of the said letter was provided by the Assessing Officer to the assessee in spite of repeated requests for the entire text. Dr. Krishna has relied in this connection, on the provisions of section 39 of the Indian Evidence Act, under which a relevant portion of a full mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are Sri Krishna Mohan's letter dated 14-2-1997 to the Assessing Officer and also his sworn statement before the Assessing Officer on 26-2-1997. So far as the last named evidence is concerned, the Assessing Officer did not supply a copy of the same to the assessee at any stage. Hence, it is not possible for the Assessing Officer to rely on this particular piece of evidence. So far as the other evidence viz., Krishna Mohan's letter dated 14-2-1997 is concerned, there is no doubt about the fact that more than a copy of the page 6 of the said letter, nothing was ever furnished to the assessee. In the said page 6, Sri Krishna Mohan once again confirmed that all the supplies of industrial gas cylinders by M/s. DDK Industries/MM Industries were not genuine and were nothing but paper invoices only. He also stated that both these concerns were non-existing and non-operating during the period. He once more confirmed that all the lease transactions entered into between M/s. Miga Gases Pvt. Ltd. and all the lessors based on the invoices obtained from M/s. DDK Industries and M/s. MM Industries were also non-genuine and were nothing but accommodative transactions given at the specific request ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever furnished to the assessee, nor they have been utilised in any way in making the impugned assessment. Such statements, if any at all, do not form a part of the records before us. It is indeed intriguing to note that while since October 1996, the Assessing Officer had been shouting about non-genuineness of the transactions relating to supply and leasing of the equipments, the materials on our record only show that for the first time Sri Krishna Mohan came with a submission in that regard in February'97. All these things suggest that the Assessing Officer was being guided by presupposition about the transactions being sham transactions simply on the basis of a general notion of the Deptt, about all lease transactions in respect of equipments entitled to 100% depreciation being bogus, based on certain material found in respect of similar transactions in the cases of certain other assessees at various places of the country. So far as this particular assessee is however concerned, it is not possible for us to conclude on the basis of the materials on record that the Assessing Officer was in possession of any positive material about non-genuineness of the transactions, even in Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the Deptt. was going to get time barred within a few days. 33. It may be true that the departmental authorities were able to detect a number of cases of bogus leasing operations in equipments entitled to 100% depreciation. The Assessing Officer has made detailed discussions in his chapter relating to "modus operandi" on this matter. He has also annexed a chart showing the inflow of money from one party to another. He has taken great pains to show that in the entire process, the assessee gets back about 85% of the amount spent by it in making the purchase of the equipments from the supplier. There is however a big missing-link in his theory and also the chart. He has not at all clarified how legally it will be possible for the entire money received by the supplier from the lessor to come to the lessee which in its turn would supply about 85% of the money to the lessor. The relationship between the supplier and the lessee has not at all clearly been discussed. In the instant case also, this general theory fails to have any effect in absence of the link between the supplier and the lessee being established by the departmental authorities. At one place, the Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of inter-state trade, the Sales Tax Tribunal had relied, inter alia, on the statement of a partner of another firm which had not been tested by cross-examination. The Supreme Court, therefore set aside the order of the Tribunal. In the instant case, the claim towards depreciation as put forward by the assessee in the case of the leasing transactions with M/s. Miga Gases Pvt. Ltd., has been denied merely on a presupposition of the Assessing Officer about non-genuineness of leasing transactions in general and on an insufficient piece of evidence like page 6 of Sri Krishna Mohan's letter addressed to the Assessing Officer dated 14-2-1997. 34. So far as the case of claim of depreciation on Solar Testing Plant on lease operations with M/s. Tejus Solar Pvt. Ltd., is concerned, the Assessing Officer merely relied on a letter dated 18-4-1996 of the Proprietrix of the supplier concerned viz., M/s. Akshay Engineering. In the said letter, the Proprietrix merely stated that she had wanted to set up a selective coating plant with the help of her husband and that she had not done any business in this company since its inception. There was no specific mention about supply of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figment of imagination on the part of the Assessing Officer. If at all there be discounting charges, such charges represent expenses in the case of the assessee and they should be deducted instead of being added back. Dr. Krishna also, did not put forward any argument on this issue. The learned counsels for the assessee have relied, in this connection on the following case-laws in support of their contention that in case the lease transactions are held to be non-genuine, all the losses incurred by the assessee as per the records should be allowed. (i) CIT v. Nainital Bank Ltd. [1966] 62 ITR 638 (SC) (ii) Badridas Daga v. CIT [195S] 34 ITR 10 (SC) (iii) CIT v. Nainital Bank Ltd. [1965] 55 ITR 707 (SC). However, since we do not find any proper grounds to suspect the genuineness of the supply and lease transactions, we feel that the claim of the assessee in this regard is merely academic in nature and need not be attended to separately. 38. The learned counsel for the assessee also objects to levy of surcharge separately in addition to tax at the rate of 60% on the undisclosed income. We agree with him that as per the provisions of section 113, separate surcharge cannot be levie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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