CIT V. ASHOK LOGANI

ITA/488/2011

AI Insights

The case involves multiple appeals by the Commissioner of Income Tax against Ashok Logani concerning the assessment years 2003-04 and 2004-05. The core issue was the unexplained cash amounting to approximately ?62,30,300 found during a search at the residence of Ashok Logani, a close associate of the MD of JMD Group. Initially, Logani had surrendered a part of this cash as undisclosed income during the search, but subsequently, only a portion was declared in his income tax returns for the respective assessment years. The CIT set aside the AO's assessments under Section 263, directing a re-examination of the unexplained cash, which the Tribunal later overturned. The High Court, however, restored the CIT's order, emphasizing the need for a thorough examination of the unexplained cash in light of the revenue's interest.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 720436 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 11-05-2011
• Assessment Year: misc
• Other Referred Cases: Kunhakannam Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: C S AGGARWAL; PRAKASH KUMAR
• Assessee Lawyers: PREM LATA BANSAL; DEEPAK ANAND; KAMAL SAWHNEY
• Keywords: Assessment Order; Income Tax; Revisionary jurisdiction; Search and seizure; Undisclosed income
• Section: 143(3); 263; 132; 153(3)

Judgement Text

"% IN THE HIGH COURT OF DELHI AT NEW DELHI ITA No.557 Of 2010 ITA No.487 of 2011 ITA No.488 of 2011 Reserved on: March 07, 2011. Pronounced On: May 11, 2011. 1^ ITA No.557 of 2010 COMMISSIONER OF INCOME TAX through : . . . APPELLANT VERSUS ASHOK LOGANI through: Ms. Prem Lata Bansal, Sr. Advocate with Mr. Deepak Anand, Avocate. . . .RESPONDENT Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. Reserved On: April 07, 2011 Pronounced On: May 11, 2011 2^ ITA No.487 of 2010 COMMISSIONER OF INCOME TAX through : . . . APPELLANT VERSUS ASHOK LOGANI through: ITA l los.557/2010, 487, 488/2011 Mr. Kamal Sawhney, Sr. Standing Counsel. . . .RESPONDENT Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. Page 1 of 2 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified 1 3^ ITA Nq.488 Of 2010 COMMISSIONER OF INCOME TAX through : . . . APPELLANT VERSUS ASHOK LOGANI through: Mr. Kamal Sawhney, Sr. Standing Counsel. . . .RESPONDENT Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. CORAM HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE M.L. MEHTA 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI. J. For orders, see ITA No.553 of 2010. MAY 11, 2011 pmc ITA Nos.557/2010, 487, 488/2011 (A.K. SIKRI) JUDGE (M.L. MEHTA) JUDGE Page 2 of 2 THE HIGH COyiRT OF DELHI AT IMIEW 'OELHI ITA Mo.553 o % 11 ITA Mo,553 of commissioner of imcome tax ITA No.557 of 2010 ITA Mo.487 of 2011 ITA N0..488 of 2011 through : Reserved on: March 07, 2011. Pronounced On:'May 11, 2011. APFElLLAi^T Ms. Prem Lata Bansal, Sr. Advocate with ' Mr. Deepak Anand, Avocate. VERSUS ASHOCC LOGAIMI . „ .respop^deimt .Mr, C.S. Aggarwal, Sr. Advocate with IMr. Prakash Kumar, Advocate. through: 21 ITA Mo.557 COMMISSIONER OF INCOME TAX „ .AP[PE[LLA6MT through : VERSUS ASHOK LOGAMI through: ITA Nos.553, 557/2010, 487, 488/2011 •Ms. Prem Lata Bansal,- Sr. Advocate vyith Mr. Deepak Anand, Avocate. Mr. Advocate with; Kumar, Advocate. C.S. Aggarwal ^1T Sr. Mr. Prakash Page 1 of 15 3) ITA 6M0.487 of 2010 . COMMISSIQtWER OF 3EP*DCOi^E through': VERSUS ASHOK LOGAWI through: 41 ITA Mq.488 Off 2010 COMMISSIONER OF IIMCOME through : /eRSUS ASHOK LOGAMI through: Reserved On: April 07, 2011 t Pronounced On: May 11, 2011 ^ „ . AF'IPELLAI Mr. Kamal Sawhney, Sr. Standing Counsel. • „ . „[^ESPOMDEiNIT Mr. I C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. APPEL Mr. Kama! Sawhney, Sr. Standing Counsel. ESPOINIP3EIMT Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. CORAM HOBM'BLE MR. JUSTICE HOSM'BLE MR. JUSTICE SC. SIKRI • X. MEHTA allowed 1. Whether Reporters of Local newspapers may be to see the Judgnnent? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.IC. SIKRI, J. ITA Nos.553, 557/2010, 487, 488/2011 Page 2 of 15 • ITA !MOc553 off 2010 & ITA Mo.,557 off 2010 7 These appeals are admitted on the following substantial question of law: \"Whether the ITAT was correct in law in setting aside the order passed by the CIT under Section 263 of the Income Tax Act?\" We heard the arguments- in detail at the time of admission itself. I These two appeals pertain to the Assessment Y and 2004-05. They are filed against the commor 21.01.2005 passed by the Income Tax' Appellate Tribunal (hereinafter referred to as 'the Tribunal') in respect of .both the assessment years. In these appeals before the Tribunal, the assessee had challenged the orders of Commissioner of Income I Tax (CIT) passed under Section 263 of the Income Tax Act i ('the Act' for brevity). Since both the orders under Section 253 of the Act were passed for these two assessment years under identical circumstances, the facts narrated hereinafter would cover both these assessment years. A search under Section 132 of the Act was carried out in JMD Group on 16.12.2003. Since the assessee was a close associate of Mr. Sunit Bedi, MD of JMD Group, search was also carried out at the residence of assessee. However, his two concerns, viz., M/s,In-Style Exports (Proprietary concern) and ITA Nos.553, 557/2010, 487, 488/2011 ^ars 2003-04 orders dated Page 3 of 15 6. M/s In-Style Exports Pvt. Ltd. (company in wlii|Ch^ he was a Director) were not covered under search/survey, buring the search, a sum of ?62,30,300/- was found from thd residence of the assessee. in the statement recorded during search, the . assessee offered a sum of ?51.30 lacs for taxation as his undisclosed income for assessment year 2003-04. Subsequently, the assessee filed his return for the assessment year 2003-04 declaring inco,me , of ?1,57,24,780/-. The assessment was framed by the Assessing Officer (AO) under Section 153(3)/143(3) of the Act at an income of Tl,58,10,044/-. After calling the records, the CIT noticed that though the assessee had offered a sum of ?61.30 lacs for taxation during search for assessment year 2003-04, but the same was not offered in'the return of income and the AO had not examined this aspect during the assessment proceedings. Accordingly, he passed the orders da'ted 31.03.2008 under Section 263 of the Act whereby he set aside the order passed by the AO with direction to him to examine the same in the light of statement recorded at the time of search and surrounding circumistances. Likewise, he found that in the assessment year 2004-05, the assessee had offered a sum of ?21 lacs only s gainst the surrendered amount of ^61.30 lacs at the time (D f search. On ITA Nos.553, 557/2010, 487, 488/2011 Page 4 of 15 r this basis, another order on the same date, i.e., 31.03.2008 was passed, under Section 263 of the Act setting aside the assessment order in respect of Assessment Year 2004-05 also to the aforesaid limited extent and directing the AO to examine •the same. The operative portion of the orders dated 31.03.2008,• which is common in both the assessment years, reads as under; \"10. Since,the Assessing Officer has fail,ed to examine the cash found at the residence of the assessee in light of the facts stated above, he made an assessment order which was' erroneous to the extent that he did not bring unexplained cash to the tax, on the basis of the admission of the assessee at the time of search.' The assessment order so farmed by the assessee was erroneous and • prejudicial to the interest of revenue. Further, although the cash of '6.30 lacs was offered as unexplained income for A.Y. 2003-04, in the return of income.filed subsequently cash of '21 lacs was offered as undisclosed income for A.Y. 2004-05. Here also, the Assessing Officer was at fault as the cash was not taxed in accordance with the statement given by the assessee. 11. • Since the assessment orders of both the Assessment Years 2003-04 and 2004-05 are erroneous and prejudicial to the interest of revenue these are set aside on; th|e limited issue of cash found during the search proceedings. The Assessing Officer is directed to examine the isr found at the re^ideqtial preniises of the assesse the statement' recorded at the time of ?ue of cash in light of ,sea|-ch and surrounding circumstances. It ,is clarified that assessment orders for both. Assessment Years are set aside since the assessee has offered part of the said cash in A.Y. 2004-05.\" 7; The assessee filed appea.ls before the Tribunal challenging the aforesaid order in respect of these two assessment years. The Tribunal has set aside the aforesaid order of the CIT. I ITA Nos,553, 557/2010, 487, 488/2011 Page 5 of 15 1 According to the Tribunal, the AO had exannined the. issue and had even considered the statement of the assessee recorded on 27.05.2005. The assessee had furnished the cash book of both of his concerns and had explained the cash found at the time of search/survey except a sum of ?2'i lacs. The cash in hand which was available as per books of accounts, in the two concerns of the assessee was ?36,95,720/- and after excluding this cash, the remaining was only ?25,34,580/-. The assessee had offered of ?21 lacs for the taxation in the year 2004-05 and thus, only a sum of ^4,34,580/- remained to be; ex plained. It s own books. was explained by the assessee as cash as per h According to the Tribunal, after examining the' claim of the assessee verifying the same from the books of accounts, the AO had accepted the claim of the assessee, though there was no mention of the same in the assessment orders. On this basis, while setting aside the order of the CIT, the Tribunal observed that order, of the CIT was merely on surmises and conjectures. Two views were possible - one, viz., the subsequent explanation of the assessee was an afterthought and the other, viz., .such an explanation was reasonable because it was corroborated and evidenced by the books of account duly audited. In a case like this, when the AO had held the inquiry, it could not be said that his order was erroneous ITA Nos.553, 557/2010,.487, 488/2011 Page 6 of 15 8. and called for any interference. Moreso, when the assessee had retracted the statement as well. The first and foremost aspect which would arise for ; ' 1 . consideration is as to whether the AO had examined the issue and surrender of ?61.30 lacs at the time of ;;e£ rch in his statement'recorded during the search out of an'amount of ?62.30 lacs found at his residence. Admittedly, there is no discussion about the same in the orders of the AO which in fact is even taken note of by the Tribunal as well. However, according to the Tribunal, as per the order- .08.2005, the found during sheet in respect of hearings held by the AO, on 24, AO had asked the assessee to explain the cash the course of search. Notings also reveal that the statement of the assessee was recorded on oath on 27.05.2005 on which date, he had explained that there was cash in'hand in the books of M/s In-Style Export, of ?18,17,202/7 in the books of In-Style Export Pvt. Ltd. of ?1S,78,518/-. The total of these two comes to ?36,95,720/-. Out of total cash found in the course of search of ?62,30,300/-, if cash of these two concerns are excluded, the remaining cash is only ?25,34,580/- out of which, the assessee had included ?21 lacs on this account in the return of income filed by him for the assesshient year 2004-05 and hence, the remaining amount, is only ?4,34,580/- was explained by the assessee as cash as per his own books. On. ITA Nos.553, 557/2010, 487, 488/2011 Page 7 of 15 u this basis, the Tribunal concluded that the AO had examined the claim and accepted the claim of the assessee after verifying the books of.accounts. 10. No doubt, the order-sheet shows that the AO had asked the assessee to explain cash found, However, whether the AO had, in fact, gone into the issue and accepted the claim of the assessee or not-is not discernible from the assessment order. No doubt, the AO is not supposed to write the orders in detail in the same manner as a Judicial Officer is supposed to write the judgments. At the same time, it cannot, be ignored that huge cash of ^62,30,300/- was found at the time of search and on that date, the assessee had surrendered a sum of ?61.30 lacs and offered the sanie for tax. However in his income tax return, the assessee had offered a. sum of ?21 lacs only against the surrendered arnount of ?61.30 lacs at the time ,of search.. In such a • scenario, there should have been at least a brief discussion recording a satisfaction on the explanation offeree assessee. We are constrained to make this cibs because of two very important features, which 'Ive ' I this case.. These are: by the ervation note in First, keeping cash of ?62.30 lacs, part of which belongs to his sole proprietorship firm, but another part to a ITA Nos.553, 557/2010, 487, 488/2011 Page 8 of 15 private limited company of which he is the Director, at residence, may raise certain doubts, though in his letter dated 07.01..2004, he had stated that he had kept the cash at his residence in safe custody, however, this aspect needed to be properly examined. Secondly, before the Tribunai, the assessee had given an explanation that cash in hands in the books of accounts of M/s In-Style Export was ?18,17,202/- and in the books of ln-5tyle Export Pvt. Ltd. was ?18,78,518/-. Balance amount of ?4,34,580/-, excluding ?21 lacs surrendered, was explained by the assessee 'as cash as per his own books'. Curiously, the explanation furnishedi before the AO, as recorded by the CIT in reply to show; was altogether different. In his reply dated 18.05.2005, the assessee had explained as under: use notice. \"(i) M/s. In-Style Exports (ii) M/s. In-Style Exports Pvt. Ltd. (iii) Shri Ashok Logani (Pers. Account) (iv) Smt. Mala Logani (Pers. Account) ?17,00,000/- ?18,00,000/- ? 4,00,000/ ? 2,30,000- ?41,30,000/- The balance cash of ?21 lacs was declared as income for the year ending 31.03.2004 relevant to A.Y. 2004-05. The assessee had also furnished the copies of balance sheet, cash book, bank statements, wealth tax return etc. to substantiate the cash balance of these entities:' Regarding the statement recorded at the time of search it was submitted that the books of accounts of the proprietorship concern and the company were not readily available with the assessee and therefore, the precise source of cash found during search could not be explained.\" ITA Nos.553, 557/2010, 487, 488/2011 Page 9 of 15 11. 12. 13. This may give an impression that it may be an afterthought on the part of the assessee to explain the cash. Under these circumstances, the AO was required to go into this issue in proper perspective and could not be perfunctory in his approach. The AO ih the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the like this, it assessee, this statement was retracted. In a caf was necessary for the AO' to at least reflect that' was proper. Another factor which we have highlighted is that the entire cash belonging to two firms was found at the residence. In the aforesaid circumstances, the CIT held the view that the I matter was not examined by the AO. We are of the opinion I that it was a reasonably, fit case for exercisin'g revisionary jurisdiction under Section 263 of the Act. After-all, CIT gave anothei^ chance to the assessee to explain the source of cash. • Once we are convinced that there was no proper consideration of the issue by the AO, the very foundation of the order of the Tribunal is knocked off. Thereafter, the Tribunal has ventured to undertake the exercise by itself satisfying about the explanation tendered by the assessee which it could not do. When the CIT passed the orders under Section 263 of the Act, at this stage he was only required to find out as to whetlner the :he retraction ITA Nos.553, 557/2010, 487, 488/2011 Page 10 of 15 ejudicial to oduce the income has escaped assessment and the order is pij the interest of Revenue. We would like to rep; following aspects highlighted by the CIT in the ordersi \"5. From the contents of the above following inferences could be made: statement the 5'.1 In contradiction of his earlier statement recorded during the search on 16.12.2003 wherein 5h. Ashok Logani could not explain the source of cash found at his residence and surrendered ^ei^O.BOO/- for taxation. ; He had subsequently tried to explain the cash as belonging to his two business concerns. He could not adduce aijiy evidence to show that the cash found at his residence belonged to his business concerns. Thus, the letter filed by his subsequently, explaining the cash found at his residence is just an afterthought. • 5.2 It may again be mentioned that none of the business premises was covered at the time of search. Hence, no actual verification of the cash lying at these premises has been carried out. 5.3 The statement recorded during the course of search had been given voluntarily by Shri. Ashok Logani as is evident from the flow of the statement. It was given in the presence of two witnesses who were respectable citizens from the same locality i.e. New Friends Colony. The assessee had not obtained any statement or affidavit from them in support of the plea that the statement was obtained under coercion or by intimidation. The assessee has' totally failed to discharge the burden of proving that fact. No case has been made out that the statement was made under a mistaken belief of fact or law that too, when the statement and admission of undisclosed income is voluntary. 5.4 During .the course of search at the residence of 5h. Ashok Logaini, jewellery amounting to ?32,21,572/- was found out of which jewellery amounting to ?9,30,757/- was seized. However, no jewellery was surrendered by the assessee which further goes to show that the; statement was recorded voluntarily without any coercion orith 'eat. 5.5 In spite of retracting his statement given,lat:the time of search, the assessee could not offer any .^plausible explanation for cash to the extent of ?21 lacs and offered the same himself for taxation in A.Y. 2.004-05 which ITA Nos.553, 557/2010, 487, 488/2011 •Page H of 15 indicated tlnat in spite of being in export business, the assesses-was in tnabit of keeping' substantial jamount of unaccounted cash at his residence. It is also ej/ident from the fact that during A.Y. 1998-99, the, assessee had surrendered an amount of ?66 lacs during the course of survey and offered the same in his return of income.\" 14. -Since these contentions were satisfied and the matter was . relegated to the AO to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order by the CIT invoking his power under Section 263 of the Act and keeping in view the scope of that provision. 15. In this iDackdrop, we would like to refer to the judgment of Kerala High Court in the case of ¥, Kunhakannam Vs. Commissioner of Income Tax 219 ITIR 235.' In the said case, the High Court held that: \"It is true that the Explanation was inserted and came into effect from April 1, 1989, that is, after the search was made in this case. ,But,_ the Explanation thereunc clarify the necessary import of \"the mair contained in Sub-section (4) of Section 132 of| does not change the substantive provision of does it lay down a different method of using th^ s recorded under Sub-section (4) of Section 132 oftneAct. It permits interrogation of persons not only in relation to the books of account, etc., found as a result of the search but also on any other matter relevant for any proceeding under this Act. In this view of the matter, we hold that the authorised .officer had the power to record statements on oath on all matters pertaining to the suppressed income.- The statement cannot be confined only to the books of account. If a partner of the firm came forward, to disclose about non-entry of the excess stock in the registers during the course of the search, there is no reascn why the Income-tax Officer shall not make use of it even though there-is no actual verification of the stock. The Tribunal has clearly found that the statement was made'voluntarily. th -ie er seeks to provision e Act. It Act; nor :atement ITANos.553, 557/2010,487, 488/2011 Page 12 of 15 S ;!•' It observed that the best and independent evidence in the matter would have been that.of the twd witnesses to the search, who are traders in the'same locality. The assessee had not obtained any statement or affidavit from them in support of the plea that the statement was obtained by coercion or intimidation. So/the assessee has totally failed to discharge the burden of proving that fact. In this case, the'assessment has been made based on the statement of the assessee. Since no case has been made out that the statement was made under a mistaken belief of fact or law, and as has been held above, the statement being a voluntary one, there is no scope for' the assessee to challenge the-correctness of the assessment as has been done in this case. A. further contention raised by the assessee was that, having rejected -.a portion of his statement regarding unaccounted investment-in a cinema theatre, there is no justification to rely on another portion of the very same statement for the purpose of sustaining addition of unaccounted stock. The addition on account of unexplained investment in the cinema theatre |as rejected not on the ground that the statement was taken ifrom the assessee on threat or coercion but on the groujnd that the cinema, theatre was .owned only by three of the four partners of the firm and that a presumption that unexplained investment, if any, was made by the assessee- firm could not be made. \" /? 16. We have to keep in mind that against the orders passed by the • - ' • ! AO, the Revenue is not given right to file an appeal, as there is no such provision. Lirhited jurisdiction is given to the CIT to revise such orders, if he finds that the same is prejudicial to the 'interest of Revenue. .On the-facts of this case, when it is found • that there was no proper consideration by the AO to the issue at hand, he left many loose ends, that too in a case where huge cash was found during survey; most of it was surrendered by giving statement at the time of search, though- retracted and sought to be explained afterwards. It was necessary for the AO ITANps.553, 557/2010,487, 488/2011 Page 13 of 15 to properly adjudicate upon this issue and the assessment order should have at least reflected that he had satisfied with the explanation disclosing source of the cash found and that Je' there was a proper and valid retraction. l reproduce the following observations of the Gujarat High Court in the case of may also S. Parskh (1995) 215 ITR 81 (GyJ): 'The words \"prejudicial to the interest of the;Revenue\" has not been defined. However, giving the ordinary meaning to the words used in the statute, they, must mean that the orders under consideration are such as ^re not in accordance with law and in consequence whereof, the lawful revenue due to the State has not been realized or cannot be realized. The well settled principle in considering the question as to whether an order is prejudicial to the interests of the Revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realized or not or can be realized or not if the orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realized has been subjected to tax or not if it is subjected to tax, whether it has been subjected to tax at the> rate at which it could yield the maximum revenue in accordance with law or not. If the income in questiori has been taxed and legitimate revenue due in respect of that income had been realized, though as a result of an erroneous order having been made in that respect, the Commissioner cannot exercise the powers for revising the order u/s. 263 merely on, the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his power by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter linked and the authority exercising the powers u/s. 2S3 is under an obligation to consider the entire material about existence of income and the tax which .is realizable in accordance with law and further what tax has in fact been realized under the assessment order.\" , , ITA Nos.553, 557/2010, 487, 488/2011 Page 14 of 15 17. We, thus, answer the question, as formulated above, in favour of the Revenue and against the assessee. As a consequence, the Tribunal's order is set aside and the order of the CIT passed under Section 263 of the Act is restored.- 18. These appeals are disposed of in the aforesaid terms. ITA No.487 of 2011 & ITA Wo.48^ of 20-11 19. These two appeals are sequelled to the aforesaid two appeals. In fact, after the CIT had passed orders under Section 263 of the Act, the AO' passed afresh assessment order dated 26.12.2008 under Section 153A.read with Section 144 and 263 •of the Act. Since the original order under Section..263 of the Act itself was set aside by the Tribunal and the order passed.by the CIT (A) has been allowed, the matter is relegated to the CIT (A) to decide the appeals filed by the assessee against the assessment order dated 26.12.2008 on merits. 20. These appeals are accordingly disposed of. JOOGE JUDGE 11/2011 pmc ITA Nos.553, 557/2010, 487, 488/2011 Page 15 of 15 "