ACIT Central Circle-5, Hyderabad V. R.S. Sudeesh, Hyderabad

ITSSA 111/HYD/2005

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7506 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 10-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2011
• Assessment Year: misc
• Appeal Filed On: 03-06-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G V HEMALATHA DEVI
• Assessee Lawyers: A V RAGHURAM
• Keywords: Search and seizure; Document seized; Corroborative evidences; Block assessment; Documents seized
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI SKTIJIT DEY, JUDICIAL MEMBER IT(SS) A NO.111/HYD/20 05 BLOCK ASST. PERIOD 1990-91 TO 2000-01 UPTO 8-3-2001. ACIT,CC-5, SRI R.S. S UDEESH, JUBILEE HYDERABAD. HI LLS, HYDERABAD. (PAN:ABAPR 7580 F) [APPELLANT] [RESPONDENT] APPELLANT BY : SMT. G.V. HEMALATHA DEVI RESPONDENT BY : SRI A.V. RAGHU RAM DATE OF HEARING : 19-3-2012 DATE OF PRONOUNCEMENT : 10-05-2012. ORDER PER SAKTIJIT DEY, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18-2-2005 PASSED BY THE CIT (A)-IV, HYDERABAD IN ITA NO.206/CC-5/CIT (A)-IV/04-05 PERTAINING TO THE BLOCK PERIOD 1990-91 TO 2000-01 UP TO 8-3-2001. 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL BEFORE US:- ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 2 I) THE CIT (A) ERRED IN DELETING THE ADDITION OF RS.2,10,23,365/- MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF GAIN IN PURCHASE AND SALE OF SHARES RELATING TO ARHAM FISCALS LTD., (NOW CALLED AS COLOR CHIPS INDIA LIMITED) DONE THROUGH A NAME LENDER COMPANY, AKHIL CERAMICS LIMITED. AS THE TRANSACTION DONE BY THE COMPANY WERE PROVED THAT THE PROFITS RELATE TO THE ASSESSEE ONLY, THE CIT (A) OUGHT TO HAVE CONFIRMED THE SAID ADDITION. II) THE CIT (A) ERRED IN DELETING THE ADDITION OF RS.68,52,500/- MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF GAIN IN PURCHASE AND SALE OF SHARES RELATING TO ARHAM FISCALS LIMITED (NOW CALLED AS COLOR CHIPS INDIA LIMITED) DONE THROUGH A NAME LENDER COMPANY, KRISHNARAMA INDUSTRIAL INVESTMENT . AS THE TRANSACSTIONS DONE BY THE COMPANY WERE PROVED THAT THE PROFITS RELATE TO THE ASSESSEE ONLY, THE CIT (A) OUGHT TO HAVE CONFIRMED THE SAID ADDITION. III) THE CIT (A) ERRED IN DELETING THE ADDITION OF RS.51,19,204/- MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF GAIN IN PURCHASE AND SALE OF SHARES RELATING TO ARHAM FISCALS LIMITED (NOW CALLED AS COLOR CHIPS INDIA LIMITED) DONE THROUGH A NAME LENDER COMPANY, SRI CHAKRA CEMENTS LTD. AS THE TRANSACTIONS DONE BY THE COMPANY WERE PROVED THAT THE PROFITS RELATE TO THE ASSESSEE ONLY, THE CIT (A) OUGHT TO HAVE CONFIRMED THE SAID ADDITION. 2. BRIEFLY, THE FACTS ARE A SEARCH AND SEIZURE OPERATIO N U/S 132 OF THE ACT WAS CONDUCTED IN THE CASE OF SRI B.K. SHARMA AND OTHERS. AS A COROLLARY, A SEARCH AND SE IZURE ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 3 OPERATION WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE AT GROUND FLOOR, K.K. TOWERS, YOUSUFGUDA, AND HYDERABAD ON 8-3-2001. ACCORDING TO THE AO, AS A RESULT OF SEARCH OPERATION, SOME INCRIMINATING MATE RIALS WERE SEIZED WHICH INDICATED THAT SOME LOSS MAKING COMPANIES VIZ., M/S AKHIL CERAMICS LTD., (ACL IN SH ORT), M/S SRICHAKRA CEMENTS LIMITED (SCL)AND KRISHNARAMA INDUSTRIAL INVESTMENTS LIMITED (KIIL) WERE UTILISED BY THE ASSESSEE FOR TRADING IN SHARES. THE FACTS AS RECO RDED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS THE PROMOTER OF THE COMPANY M/S. COLOR CHIPS INDIA LIMITED (CCI LTD) WHICH WAS FORMED THROUGH THE PROCESS OF REVERSE MERGER OF A COMPANY BY NAME M/S ARHAM FISCA LS LTD (AFL IN SHORT). THE PROMOTERS SHARE HOLDING O F M/S AFL WAS ACQUIRED BY A COMPANY COLOR CHIPS ANIMATION PARK PVT. LTD. AFTER ACQUIRING THE SHARE HOLDING NAME OF M/S AF WERE CHANGED TO M/S CCI LTD. LIQUIDATION CAP ITAL OF M/S AF IS RS.10 CORES ( ONE CRORE OF SHARES OF RS.10/- EACH) AND THE PROMOTERS OF THE COMPANY WERE HOLDING 36 LAKHS SHARES WHICH WERE ACQUIRED BY COLOR CHIPS ANIMATION PARK PVT. LTD. THE AO FOUND THAT THE SHA RES OF M/S AF WERE SOLD BY THREE COMPANIES NAMED EARLIER I .E., M/S AKHIL CERAMICS LTD., M/S SRICHAKRA CEMENTS LIMI TED AND KRISHNARAMA INDUSTRIAL INVESTMENTS LIMITED AND SUBSTANTIAL PROFITS WERE EARNED BY THEM WHICH WER E SHOWN IN THEIR RETURNS FILED. SUBSEQUENT TO THE SE ARCH AND SEIZURE OPERATIONS DURING THE BLOCK ASSESSMENT PROCEEDINGS U/S 158BD OF THE ACT, THE AO MADE ENQUIR IES ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 4 IN RESPECT OF THE PROFITS MADE BY THE AFORESAID THR EE COMPANIES FROM SALE OF SHARES. 3. THE AO EXAMINED THE MANAGING DIRECTOR OF M/S AC L SRI S. RAMANA REDDY ON 1-5-2001. IN THE STATEMENT RECORDED, MR. REDDY STATED THAT HE WAS UNAWARE OF A NY PURCHASE OR SALE OF SHARES AND ONLY HANDED OVER SIG NED LETTER HEADS TO THE ASSESSEES BROTHER. HE STATED THAT THE PERSONS CONNECTED WITH M/S COLOR CHIPS INDIA LI MITED UTILISED THE COMPANY FOR CONVERTING UNACCOUNTED MONEY AND SUCH TRANSACTIONS WERE AGREED FOR CONSIDERATIO N OF RS.6.3 LAKHS WHICH WAS LEFT IN THE BANK ACCOUNT. T HE AO FURTHER FOUND THAT M/S ACL PURCHASED THE SHARES FRO M M/S VIJAYA DURGA IMPEX CORPORATION AND SANDILYA ASSOCIATES. THE SHARES PURCHASED BY M/S ACL THROU GH FOUR BROKERS. ONE OF THE SHARE BROKERS SRI T. SRI NIVASA RAO WAS ALSO EXAMINED BY THE AO. A STATEMENT WAS A LSO RECORDED FROM THE PROPRIETOR OF SANDILYA ASSOCIATE S. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THE ASSESSEE WAS IN NO WAY CONNECTED WITH THE PURCHASE OF SHARES BY M/S. ACL. THE ASSESSEE SUBMITTED THAT EARLIER MR. REDDY , MANAGING DIRECTOR OF ACL HAS GIVEN INCORRECT STATEM ENT AND WHEN HE REALISED HIS MISTAKE, HE FILED AN AFFID AVIT STATING THAT HIS EARLIER STATEMENT WAS NOT CORRECT. ON THE BASIS OF AFFIDAVIT, MR. RAMANA REDDY WAS AGAIN EXAM INED BY THE AO ON 26-9-2003 AND DURING THE COURSE OF RECORDING STATEMENT, MR. REDDY CONFIRMED THAT THE S HARE TRANSACTION WAS MADE BY M/S ACL AND ALSO STATED THA T THE DETAILS REGARDING THE SHARE TRANSACTION HAS BEE N ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 5 RECORDED IN THE BOOKS OF ACCOUNTS OF THE COMPANY AN D THE COMPANY HAS ALSO FILED RETURN OF INCOME PRIOR TO T HE DATE OF SEARCH DECLARING THE PROFIT FROM SALE OF SHARES. THE AO DID NOT BELIEVE THE STATEMENT OF MR. REDDY ON THE G ROUND OF CONTRADICTORY STAND TAKEN BY HIM. THE AO RELYI NG UPON A SEIZED PAPER FOUND DURING THE SEARCH OPERA TION WHICH CONTAINED SAME NOTINGS CONCLUDED THAT PROFI TS EARNED ON SALE OF SHARES OF M/S. ACL TO THE TUNE O F RS.2,20,23,365.00 IS IN FACT THE ASSESSEES UNDISC LOSED INCOME FOR THE BLOCK PERIOD. REGARDING THE SALE OF SHARES BY TWO OTHER COMPANIES M/S. KRISHNARAMA INDUSTRIAL INVESTMENTS LIMITED AND M/S SRICHAKRA CEMENTS LIMI TED. THE AO FOUND THAT MR. N. KRISHNA MOHAN IS A DIRECTO R OF BOTH THE COMPANIES. M/S KRISHNARAMA INDUSTRIAL INVESTMENTS LIMITED (KIIL) SOLD 50,000 SHARES OF A FL AND SALE PROCEEDS WERE DEPOSITED INTO THE BANK ACCO UNT. 4. THE AO FOUND THAT THE SHARES OF M/S AF WERE PURCHASED FROM VIJAYA DURGA IMPEX CORPORATION (VDIC ) DURING JANUARY, 2000 WHEREAS THE PAYMENTS WERE MADE DURING MARCH, 2000. THE AO NOTICED THAT IN THE LIS T OF SHARE HOLDERS VDIC WAS NOT SHOWN AS A SHARE HOLDER . THE AO FURTHER FOUND THAT THE LETTER OF OFFER WAS N OT SIGNED AND DESPATCHED TO VDIC BY THE REGISTRAR. A STATEMENT WAS ALSO RECORDED FROM SRI V. RAMAKRISH NA WHO ARRANGED THE SALE OF SHARE. ON THE BASIS OF T HESE FACTS, THE AO CAME TO THE CONCLUSION THAT THE INC OME ARISING OUT OF SALE OF SHARES BY KIIL AMOUNTING TO RS.68.52 LAKHS SHOULD BE ASSESSED AT THE HANDS OF T HE ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 6 ASSESSEE. IN RESPECT OF SALE OF SHARES BY SRI CHA KRA CEMENTS LTD (SCL), THE AO FOUND THAT 28,500 SHARES OF AF WERE SOLD BY THIS COMPANY AND THE SALE PROCEEDS WERE DEPOSITED IN A BANK ACCOUNT. THE AO FOUND THAT THE AMOUNTS CREDITED TO THE BANK ACCOUNT WAS WITHDRAWN AND CLAIMED TO HAVE BEEN PAID TO THE CREDITORS. THE A O FOUND THAT AN AMOUNT OF RS.4.64 LAKHS WAS WITHDRAWN BY MR. G.S. VASAN, THE PERSON AVAILABLE IN THE ASSESSE ES PREMISES ON THE DATE OF SEARCH AND SEIZURE OPERATIO NS. A STATEMENT WAS RECORDED FROM MR. KRISHNAMOHAN IN TH E PRESENCE OF THE AO. THE AO OBSERVED THAT THOUGH TH E SALE TRANSACTION TOOK PLACE IN JANUARY, 2000 BUT TH E PAYMENTS WERE MADE IN MARCH AND APRIL, 2000. THE A O FURTHER OBSERVED THAT THOUGH IT IS CLAIMED THAT THE SHARES WERE PURCHASED BY VDIC, THE LIST OF SHAREHOLDERS DO ES NOT INDICATE VDIC AS ONE OF THE SHAREHOLDERS. ON THE BASIS OF THE ABOVE FACTS, THE AO CONCLUDED THAT THE STATE MENT GIVEN BY MR. KRISHNAMOHAN IS NOT CONCLUSIVE PROOF REGARDING THE TRANSACTIONS ENTERED INTO AND HENCE T HE AO HELD THAT THE ASSESSEE IS THE BENEFICIARY OF THESE TRANSACTIONS AND ASSESSED THE PROFIT ON THE SALE OF SHARES OF 59.19 LAKHS AS THE ASSESSEES UNDISCLOSED INCO ME FOR THE BLOCK PERIOD. THE AO WHILE COMPLETING THE BLOC K ASSESSMENT HELD THAT THE SHARE TRANSACTION OF THE AFORESAID THREE COMPANIES IN REALITY IS BENAMI TRANSACTIONS OF THE ASSESSEE. THE AO OBSERVED THAT A DOCUMENT SEIZED DURING THE SEARCH OPERATION WHE RE CERTAIN WITHDRAWALS WERE REFLECTED COINCIDES WITH T HE WITHDRAWAL MADE FROM THE BANK ACCOUNT OF ACL. WHIL E ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 7 COMING TO SUCH A CONCLUSION, THE AO ALSO DID NOT GI VE MUCH CREDENCE TO THE ASSESSEES CONTENTIONS THAT TH E ENTIRE TRANSACTION OF SALE OF SHARES HAVE BEEN RECO RDED IN THE BOOKS OF ACCOUNTS OF THE THREE COMPANIES AND INCOMES ARISING OUT OF SALE OF SHARES HAVE BEEN DEC LARED IN THE RETURNS FILED BY THE AFORESAID THREE COMPANI ES PRIOR TO THE DATE OF SEARCH. 5. THE ASSESSEE CHALLENGED THE ADDITIONS MADE IN TH E BLOCK ASSESSMENT BY FILING AN APPEAL BEFORE THE CIT (A). BEFORE THE CIT (A), THE ASSESSEE CONTENDED THAT NON E OF THE SEIZED MATERIAL ESTABLISHES THE FACT THAT THE ASSESSEE IS THE REAL BENEFICIARY IN THE SALE OF SHA RES EFFECTED BY THE ABOVE MENTIONED THREE COMPANIES VI Z. ACL, KIIL AND SCL. THE ASSESSEE CONTENDED THAT SH RI RAJENDRA KANUNGO, DIRECTOR OF AFL ALSO NEVER SAID THAT THE ASSESSEE WAS INVOLVED IN THE SHARE TRANSACTION. THE ASSESSEE CONTENDED THAT MR. RAMAN A REDDY, M.D OF ACL EVEN IN HIS EARLIER STATEMENT WHICH WAS RETRACTED LATER HAS NEVER IMPLICATED THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTED THAT THE SEIZED DOCUMENTS ON WHICH THE AO HAS PLACED STRONG RELIANCE AND WHICH IS MADE AN ANNEXURE TO THE ASSESSMENT ORDER WHEREIN CERTAIN NOTINGS WERE FOUND IS IN FACT A PAPER FROM THE CASH BOOK OF YELLAPANTUL U PORTFOLIO SERVICES PVT. LTD WHICH ALSO FUNCTIONED F ROM THE SAME PREMISES FROM WHERE THE ASSESSEES BUSINES S IS CONDUCTED. THE ASSESSEE CONTENDED THAT THE ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 8 PUNCHANAMA RECORDED IN COURSE OF THE SEARCH CLEARLY INDICATES THAT THE PAPERS RELATING TO YELLAPANTULU PORTFOLIO SERVICES WERE FOUND AT THE SAME PREMISES WHERE THE ASSESSEES BUSINESS IS SITUATED THE ASSE SSEE CON TENDED THAT THE AO WAS TOTALLY WRONG IN BRUSHIN G ASIDE THE FACTS THAT THE TRANSACTIONS RELATING TO S ALE OF SHARES HAVE BEEN ADMITTED IN THE BOOKS OF ACCOUNTS OF THE COMPANIES AND THEY HAVE FILED A RETURN OF INCOM E DECLARING THE PROFIT FROM SALE OF SHARES PRIOR TO T HE DATE OF SEARCH. UNDER THESE CIRCUMSTANCES, THE ASSESSEE CONTENDED THAT INCOME FROM SALE OF SHARES BY ACL, K IIL AND SCL CANNOT BE TREATED AS THE ASSESSEES UNDISCLOSED INCOME. THE CIT (A) AFTER CONSIDERING THE ASSESSEES CONTENTIONS FOUND THAT NEITHER THE MATER IALS FOUND DURING THE SEARCH OPERATIONS NOR ANY OTHER EVIDENCE BROUGHT ON RECORD BY THE AO COULD ESTABLIS H THE FACT THAT THE ASSESSEE WAS THE REAL BENEFICIAR Y OF THE SHARE TRANSACTION. THE CIT (A) FURTHER FOUND THAT THE SUBSEQUENT STATEMENT OF SRI RAMANA REDDY, M.D OF ACL CONFIRMING THE SHARE TRANSACTION BY THE COMPANY WAS SUPPORTED BY THE FINAL ACCOUNTS OF THE COMPANY AND THE RETURN OF INCOME SHOWING INCOME FROM SALE OF SHARES WAS FILED PRIOR TO THE SEARCH . THE CIT (A) ALSO FOUND THAT NONE OF THE PERSONS WHOSE STATEMENTS WERE RECORDED BY THE AO INDICATED THAT T HE ASSESSEE WAS CONNECTED WITH THE SALE OF SHARES BY A CL. THE CIT (A) ALSO FOUND THAT THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE FUNDS WERE ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 9 WITHDRAWN FROM THE BANK ACCOUNT OF ACL BY THE ASSESSEE. THE CIT (A) FOUND THAT THE SEIZED PAPER WHICH IS ANNEXED TO THE ASSESSMENT ORDER AND WHICH WAS RELIED UPON BY THE AO TO PROVE THAT THE AMOUNTS WERE WITHDRAWN FROM BANK ACCOUNT OF ACL BY THE ASSESSEE DOES NOT BELONG TO THE ASSESSEE. THE CIT (A) AFTER EXAMINING THE CORRESPONDENCE BETWEEN ACL AND YELLAPANTULU PORTFOLIO SERVICES PVT. LTD., FOUND TH AT THE TRANSACTIONS IN THE SEIZED PAPER RELATE TO YELLAPAN TULU PORTFOLIO SERVICES PVT. LTD WHICH ALSO FUNCTIONED F ROM THE SAME PREMISES WHERE ASSESSEES BUSINESS IS FUNCTIONING. THE CIT (A) ALSO CONSIDERED THE FACT T HAT THE TRANSACTION RELATING TO THE SALE OF SHARES HAS NOT ONLY BEEN DULY RECORDED IN THE BOOKS OF ACCOUNTS OF ACL BUT THEY HAVE ALSO BEEN DISCLOSED IN THE RETURN OF INCOME FILED PRIOR TO THE DATE OF SEARCH BY ACL. ON THE ABOVE CONSIDERATION, THE CIT (A) CAME TO A FINDING THAT INCOME FROM SALE OF SHARES FROM ACL CANNOT BE TREAT ED AS UNDISCLOSED INCOME OF THE ASSESSEE. THE CIT (A) OBSERVED THAT WHILE DETERMINING THE UNDISCLOSED INCOME UNDER SECTION 158BC OF THE ACT THE AO CAN ON LY UTILISE THE SEIZED MATERIAL AND NOTHING ELSE. IN S UPPORT OF SUCH FINDING, THE CIT (A) RELIED UPON THE ORDER OF THE ITAT IN THE CASE REPORTED IN 72 ITD 228. IN RESPE CT OF OTHER TWO COMPANIES I.E., KIIL AND SCL, THE CIT (A) FOUND THAT THE NEITHER THE SEIZED MATERIAL NOR THE STATEMENT RECORDED FROM THE PERSONS BY THE AO WOULD ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 10 ESTABLISH THE FACT THAT THE ASSESSEE IS IN ANY WAY CONNECTED WITH THE SALE OF SHARES BY THESE COMPANIE S. 6. ON THE CONTRARY, THE FACTS AVAILABLE ON RECORD DEMONSTRATE THAT THE SHARES WERE PURCHASED THROUGH VDIC AND SOLD THROUGH SHARE BROKERS. THE ENTIRE TRANSACTION HAS BEEN RECORDED IN THE BOOKS OF ACCOU NTS OF THE COMPANIES AND THEY HAVE ALSO FILED RETURNS DISCLOSING THE PROFIT FROM THE SALE OF SHARES PRIOR TO THE DATE OF SEARCH. ON THE AFORESAID CONSIDERATION, TH E CIT (A) HELD THAT THE INCOME EARNED BY THE COMPANIES FR OM SALE OF SHARES, CANNOT BE TREATED AS THE ASSESSEES UNDISCLOSED INCOME AND ACCORDINGLY DELETED THE ADDITIONS MADE BY THE AO. 7. THE LEARNED DR WHILE SUPPORTING THE FINDINGS OF THE AO SUBMITTED THAT ALL THE THREE COMPANIES MENTIONED SUPRA INVOLVED IN THE SHARE TRANSACTIONS ARE LOSS MAKING COMPANIES AND THEY DID NOT HAVE SOURCE TO PURCHASE THE SHARES. THE LEARNED DR FURTHER SUBMITTED THAT THE THREE COMPANIES PURCHASED THE SHARES OF M/S AF AT A LOWER PRICE OF 14 LAKHS AND S OLD THEM AT A VERY HIGHER PRICE OF MORE THAN RS.3 CR ORES. IT IS SUBMITTED BY THE LEARNED DR THAT THE PROFITS FROM SALE OF SHARES WERE SET OFF AGAINST THE LOSS AND NO TAX WAS PAID. THE LD. DR SUBMITS THAT THE AO HAS MADE STRENUOUS EFFORTS IN FINDING OUT THE REAL INTENTION BEHIND THE ENTIRE TRANSACTION AND THE ADDITIONS HAV E ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 11 BEEN MADE ON THE BASIS OF SOUND REASONING. THE LD. DR WHILE ADMITTING THE FACT THAT THE SALE OF SHARES HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF RESPECTIV E COMPANIES AND THEY HAVE ALSO SHOWN IN THEIR RETURN OF INCOME FILED PRIOR TO THE DATE OF SEARCH SUBMITS TH AT THE APPARENT CANNOT ALWAYS BE TAKEN AS REAL AND THE AO IS COMPETENT ENOUGH TO FIND OUT THE REALITY BEHI ND THE TRANSACTION. IN THIS REGARD, THE LEARNED DR HA S RELIED UPON THE FOLLOWING DECISIONS. I) CIT VS. D.P. MORE (82 ITR 540) II) SUMATI DAYAL (214 ITR 801 (SC) 8. ON THE OTHER HAND, THE LEARNED AR SUBMITS BEFORE US THAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF SEARCH WHICH COULD ESTABLISH THAT THE ASSESSEE IS THE REAL BENEFICIARY OF THE SHARES SOLD BY THREE COMPANIES MENTIONED ABOVE. THE LEARNED AR SUBMITTED THAT THE STATEMENT GIVEN BY SHRI REDDY OF M/S ACL WHICH WAS RELIED UPON BY THE AO, NOWHERE SUGGESTS THAT THE ASSESSEE WAS THE OWNER OF THE SHA RES AND WAS THE PERSON WHO SOLD THE SHARES. REFUTING T HE AOS REASONING THAT ACL IS A SICK COMPANY AND DID N OT HAVE THE FINANCIAL CAPABILITY OF PURCHASING SHARES, THE LEARNED AR SUBMITTED SUCH A FINDING IS INCORRECT AN D NOT BASED ON ANY SUPPORTING EVIDENCE. REFERRING TO THE FINAL ACCOUNTS OF ACL, THE LEARNED AR SUBMITTED THAT THE TRANSACTIONS ARE RECORDED IN THE BOOKS OF ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 12 ACCOUNTS OF THE COMPANY AND THE SOURCE OF INVESTMEN T AS WELL AS THE SALE PARTICULARS HAS ALSO BEEN RECOR DED IN THE BOOKS. THE COMPANY HAS FILED ITS RETURN OF INCOME PRIOR TO THE DATE OF SEARCH DISCLOSING THE S ALE OF SHARES. THEREFORE, IT IS CLEAR THAT THE INCOME FR OM SALE OF SHARES NEVER BELONGED TO THE ASSESSEE. THE LEAR NED AR SUBMITTED THAT THIS FACT WAS ALSO CORROBORATED B Y THE M.D OF ACL SRI REDDY IN HIS STATEMENT RECORDED BY THE AO. THOUGH SRI REDDY EARLIER IN HIS STATEMENT RECORDED ON 30-4-2001 STATED THAT SOME PERSONS FROM M/S. COLOR CHIPS INDIA LTD., APPROACHED HIS COMPANY WITH THE PROPOSAL TO USE HIS COMPANY IN THE SALE TRANSACTION AND OFFERED 3% COMMISSION, HE NEVER MENTIONED THAT THE ASSESSEE WAS THE PERSON CONCERNE D. THE LEARNED AR SUBMITTED THAT SRI REDDY SUBSEQUENTLY FILED AN AFFIDAVIT WHEREIN IT WAS MENTIONED THAT THE TRANSACTION OF SHARES WERE ACQUIRED AND SOLD BY ACL THROUGH SHARE BROKERS AS MENTIONED ABOVE AND WAS NOT CARRIED OUT BY SCL OR BY ANY PERSON ON THEIR BEHALF . ON THE BASIS OF THE AFFIDAVIT WHEN MR. REDDY WAS AGAIN EXAMINED BY THE AO ON 26-9-2003, HE CATEGORICALLY STATED THAT HIS EARLIER STATEMENT WAS WRONG AS HE WAS MISLED BY HIS ACCOUNTANT AND HE ADMITTED THAT THE COMPANY HAS TRANSACTED IN SHARES. HE ALSO EXPLAINED THE SOURCE OF INVESTMENT. THE LEARNED AR ALSO CHALLENGED THE A OS FINDING THAT THE ASSESSEE HAS WITHDRAWN THE AMOUNTS FROM THE BANK ACCOUNT OF ACL THROUGH ONE SRI G.S. ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 13 VASAN BY WAY OF SELF CHEQUE. THE LEARNED AR CONTENDED THAT NOTHING WAS BROUGHT ON RECORD TO ESTABLISH THAT SRI VASAN WAS IN ANY WAY CONNECTED W ITH THE ASSESSEE. THERE IS ALSO NOTHING ON RECORD TO PROVE THAT THE ASSESSEE IN FACT HAS WITHDRAWN THE AMOUNTS FROM THE BANK ACCOUNT OF ACL THROUGH SRI G.S. VASA N BY WAY OF SELF CHEQUE. SRI VASAN IN HIS STATEMENT RECORDED BY THE AO HAS CLEARLY STATED THAT THE TRANSACTIONS ARE IN NO WAY RELATED TO THE ASSESSEE. THE LEARNED AR FURTHER SUBMITTED THAT REGARDING THE SAL E OF SHARES BY OTHER TWO COMPANIES ALSO, THERE ARE NO MATERIALS ON RECORD WHICH COULD LINK THE ASSESSEE W ITH THE SALE OF SHARES. IN THE STATEMENT RECORDED FROM THE MD OF THE TWO COMPANIES HE NEVER SAID THAT THE TRANSACTION IN SHARES DO NOT BELONG TO THE SAID COMPANIES. THE LEARNED AR FURTHER SUBMITTED THAT AOS INFERENCE THAT THE ACQUISITION OF SHARES THROU GH VDIC AND SANDILYA ASSOCIATES ARE BOGUS BECAUSE THES E TWO CONCERNS NEVER EXISTED IS EQUALLY UNACCEPTABLE. HOWEVER, THE LEARNED AR SUBMITTED THAT, THE ASSESSE E BEING IN NO WAY CONNECTED WITH THE PURCHASE AND SAL E OF SHARES THROUGH THESE TWO CONCERNS, IT IS NOT FO R HIM TO PROVE THE GENUINENESS OF THESE TWO CONCERNS. TH E LEARNED AR WHILE SUMMING UP HIS ARGUMENTS CONTENDED THAT THERE WAS NO INFORMATION EITHER FROM THE SEIZED DOCUMENT OR SOME OTHER MATERIAL BROUGHT ON RECORD WHICH COULD SHOW THAT THE ASSESSEE WAS THE R EAL PERSON BEHIND THE PURCHASE AND SALE OF SHARES BY AC L, ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 14 KIIL AND SCL. THE SALE OF SHARES HAS BEEN RECORDE D IN THE BOOKS OF ACCOUNTS OF THE COMPANIES AND THEY HAV E ALSO FILED THEIR RETURNS SHOWING THE PROFITS FROM T HE SALE OF SHARES PRIOR TO THE DATE OF SEARCH. THE ENTIRE ADDITION WAS MADE ONLY ON PRESUMPTIONS. THE LEARNE D AR SUBMITTED THAT UNDISCLOSED INCOME HAS TO BE DETERMINED IN CASE OF A SEARCH ASSESSMENT STRICTLY ON THE BASIS OF THE MATERIAL FOUND IN THE COURSE OF SE ARCH OPERATION. IN SUPPORT OF SUCH CONTENTION, THE LEAR NED AR RELIES ON THE FOLLOWING DECISIONS OF DIFFERENT H IGH COURTS:- I) CIT VS. NR PAPERS AND BOARDS LIMITED (248 ITR 526) (GUJ.) II) CIT VS. DR.MKE MENON (248 ITR 310) (BOM) III) BHAGWATI PRASAD KEDIA VS. CIT REPORTED IN 248 ITR 562 (CAL). IV) CIT VS. RAVI KANT JAIN (250 ITR 141) (DELHI) 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES. WE HAVE CAREFULLY PERUSED THE MATERIALS PLACED ON RECORD BEFORE US IN THE FORM OF PAPER BOO K. WE HAVE ALSO SEEN THE REASONING OF THE AO IN ASSESSMENT ORDER WHILE DETERMINING THE UNDISCLOSED INCOME AND THE FINDING OF THE CIT (A) WHILE DELETIN G THE SAME. THE UNDISPUTED FACTS ARE THAT PURSUANT TO TH E SEARCH AND SEIZURE OPERATIONS, EXCEPTING SEIZURE OF CERTAIN DOCUMENTS NO OTHER ASSETS LIKE UNACCOUNTED CASH, VALUABLES WERE FOUND FROM THE PREMISES OF THE ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 15 ASSESSEE. IN ONE OF THE DOCUMENTS SEIZED, CERTAIN NOTINGS WERE MENTIONED. WHILE MAKING POST SEARCH ENQUIRY, THE AO FOUND THAT THE SHARES OF M/S AF WER E SOLD BY THREE COMPANIES AS MENTIONED ABOVE. THE DETAILS OF SHARES SOLD ARE GIVEN BELOW:- NAME OF THE COMPANY NO. OF SHARES SOLD PROFIT AKHIL CERAMICS 1,43,300 RS .2,20,23,365 KRII 50,000 RS. 68,52,500 SCL 28,500 RS. 51,19,024 11. THE AO HAS OBSERVED THAT THE ASSESSEE IS THE PROMOTER OF THE COMPANY WHICH WAS FORMED THROUGH THE PROCESS OF REVERSE MERGER OF AF LIMITED. THE A O EXAMINED ONE OF THE DIRECTORS OF AFL AND THE MDS OF THE THREE COMPANIES WHICH WERE INVOLVED IN THE SHAR E TRANSACTION OF AFL. THE AO ALSO EXAMINED SOME OTH ER PERSONS WHOSE STATEMENTS WERE EXTRACTED IN THE ASSESSMENT ORDER. THE AO ALSO STRONGLY RELIED UPON THE NOTINGS IN THE SEIZED PAPER WHICH IS MADE ANNEXURE TO THE ASSESSMENT ORDER. ON THE BASIS OF THESE FACTS AND MATERIALS, THE AO CAME TO A CONCLUS ION THAT THE THREE COMPANIES MENTIONED SUPRA INVOLVED I N SHARE TRANSACTIONS, ARE SICK COMPANIES AND THEY DO NOT HAVE THE SOURCE FOR INVESTMENT IN PURCHASE OF SHARE S. THE AO CONCLUDED THAT THESE THREE COMPANIES WERE USED AS A FRONT BY THE ASSESSEE TO ENTER INTO SHARE TRANSACTION AND PARK THE PROJECT EARNED FROM SALE O F ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 16 SHARES IN THESE THREE LOSS BEARING COMPANIES WITH T HE INTENTION OF AVOIDING PAYMENT OF LEGITIMATE INCOME- TAX DUES. THE AO ON THESE ASSUMPTIONS TREATED THE ENTI RE PROFIT EARNED BY THE THREE COMPANIES FROM SALE OF SHARES AS UNDISCLOSED INCOME OF THE ASSESSEE. WE H AVE EXAMINED THE MATERIALS ON THE BASIS OF WHICH THE AO MADE THE ADDITION. AFTER GOING THROUGH THEM, WE DI D NOT FIND EVEN A REMOTE LINK TO ESTABLISH THE FACT T HAT THE ASSESSEE IS THE REAL BENEFICIARY OF THE SHARE TRANSACTIONS ENTERED INTO BY THE ABOVE SAID THREE COMPANIES. NONE OF THE PERSONS EXAMINED BY THE AO HAVE STATED THAT THE ASSESSEE WAS IN ANY WAY INVOLV ED WITH EITHER PURCHASE OR SALE OF SHARES OF THREE COMPANIES (SUPRA). 12. ON THE CONTRARY, STATEMENT ON OATH GIVEN BY MR . REDDY, M.D OF ACL AND MR. KRISHNAMOHAN, M.D OTHER TWO COMPANIES TO THE EFFECT THAT THEIR COMPANIES HA VE CARRIED OUT THE SHARE TRANSACTION HAS BEEN CORROBORATED BY THE FACT THAT ALL THE DETAILS RELAT ING TO SHARE TRANSACTION INCLUDING THE SOURCE OF INVESTMEN T HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS AND ALS O THE FINAL ACCOUNTS OF COMPANIES. THE PROFIT FROM SALE OF SHARES HAS ALSO BEEN DISCLOSED IN THE RETURNS OF INCOME FILED BY ALL THREE COMPANIES PRIOR TO THE DA TE OF SEARCH. WE HAVE EXAMINED ALL THESE DOCUMENTS WHICH ARE PART OF THE PAPER BOOK. WHEN THE INCOME ARISIN G OUT OF SALE OF SHARES HAVE BEEN RECORDED IN THE BOO KS ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 17 AND THE FINAL ACCOUNTS OF THE RESPECTIVE COMPANIES AND DECLARED TO THE DEPARTMENT IN THE RETURNS FILED BY THEM PRIOR TO THE DATE OF SEARCH, BY NO STRETCH OF IMAGINATION, THEY CAN BE TREATED AS UNDISCLOSED INC OME OF THE ASSESSEE. THE AO IS NOT AT ALL JUSTIFIED IN BRUSHING ASIDE THIS VITAL PIECE OF EVIDENCE WHICH C LEARLY NEGATES THE FINDING OF THE UNDISCLOSED INCOME BY TH E AO. BLOCK ASSESSMENT UNDER THE CHAPTER XIV-B IS A SPECIAL MODE PROVIDED UNDER THE IT ACT FOR ASSESSME NT OF UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH A ND SEIZURE OPERATIONS. THE UNDISCLOSED INCOME IN BLOC K ASSESSMENT THEREFORE HAS TO BE DETERMINED STRICTLY ON THE BASIS OF THE MATERIALS UNEARTHED DURING THE SEA RCH OPERATIONS. IN THE PRESENT CASE, NEITHER THE SEIZE D MATERIALS NOR ANY OTHER MATERIALS BROUGHT ON RECORD BY THE AO COULD ESTABLISH ANY NEXUS BETWEEN THE ASSESS EE AND THE SALE OF SHARES BY THREE COMPANIES. THE ONE SEIZED DOCUMENT ON WHICH MUCH RELIANCE PLACED BY TH E AO FOR DETERMINING THE UNDISCLOSED INCOME HAS BEEN DISOWNED BY THE ASSESSEE AND THE CIT (A) ON THE BAS IS OF FACTS PLACED BEFORE HIM FOUND THE ASSESSEES CONTENTION TO BE CORRECT THAT THE SAID SEIZED DOCUM ENT IS A PAGE FROM THE CASH BOOK OF YELLAPANTULU PORT FOLIO SERVICES PVT. LTD., WHICH IS ALSO FUNCTIONING IN TH E SAID PREMISES. DIFFERENT HIGH COURTS ARE CONSISTENT I N THEIR VIEW THAT UNDISCLOSED INCOME HAS TO BE DETERMINED IN CASE OF SEARCH ASSESSMENT STRICTLY ON THE BASIS OF SEIZED MATERIALS. THE HONBLE BOMBAY HIGH ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 18 COURT IN THE CASE REPORTED IN 248 ITR 310 HAS OBSER VED THAT THE SCOPE OF BLOCK ASSESSMENT UNDER CHAPTER XI V- B IS QUITE DIFFERENT FROM THAT OF REGULAR ASSESSMEN T. WHILE IN REGULAR ASSESSMENT, THE AO HAS TO ENSURE T HAT THE ASSESSEE HAS NOT UNDERSTATED THE INCOME OR HAD NOT COMPUTED EXCESSIVE LOSS OR HAD NOT UNDER PAID T HE TAX IN ANY MANNER, IN CASE OF AN ASSESSMENT UNDER CHAPTER XIV-B WHAT IS DETERMINED IS ONLY THE UNDISCLOSED INCOME OF THE BLOCK PERIOD, SO THE SCOP E IN A CASE OF BLOCK ASSESSMENT IS VERY LIMITED. SIMILA R IS THE OBSERVATION OF THE HONBLE KOLKATA HIGH COURT I N THE CASE REPORTED IN 248 ITR 562. THE HONBLE DE LHI HIGH COURT IN THE CASE CIT VS. RAVI KANT JAIN( 250 ITR 141) ALSO LAID DOWN THE LAW THAT A BLOCK ASSESSMENT UNDER CHAPTER XIV-B IS NOT INTENDED TO BE A SUBSTIT UTE FOR REGULAR ASSESSMENT. THE ASSESSMENT FOR THE BLO CK PERIOD CAN ONLY BE DONE ON THE BASIS OF EVIDENCE FO UND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF AC COUNTS OR DOCUMENTS OR SUCH OTHER INFORMATION AS WAS AVAILABLE WITH THE AO. THE EVIDENCE FOUND AS A RES ULT OF SEARCH IS CLEARLY RELATABLE TO SECTION 132 AND 1 32A OF THE ACT. 14. ON THE CUMULATIVE ANALYSIS OF THE FACTS AND EVIDENCES, WE FIND THAT THE BLOCK ASSESSMENT DETERMINING UNDISCLOSED INCOME AT THE HANDS OF THE ASSESSEE HAS BEEN MADE PURELY ON ASSUMPTIONS AND PRESUMPTIONS HAVING NO NEXUS WITH THE SEIZED ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 19 MATERIALS. THE AO HAS FAILED TO BRING ANY SUPPORTI NG EVIDENCE OR MATERIAL ON RECORD TO PROVE THAT THE ASSESSEE WAS IN ANY WAY CONNECTED WITH OR BENEFICIA RY OF SALE OF SHARES MADE BY THREE COMPANIES VIZ., ACL,KIIL AND SCL. WE FIND NOTHING ON RECORD TO PRO VE THE ADDITIONS MADE AT THE HANDS OF THE ASSESSEE FOR DETERMINING THE UNDISCLOSED INCOME. 15. ON THE OTHER HAND, THE MATERIALS BROUGHT ON RECORD BY THE ASSESSEE CLEARLY PROVE THE FACT THAT THE SHARE TRANSACTIONS HAVE BEEN RECORDED IN THE BOOKS OF ACCOUNTS OF THREE COMPANIES AND PROFITS FROM SALE O F SHARES HAVE BEEN DISCLOSED IN THE RETURNS OF INCOME FILED BY THEM PRIOR TO THE DATE OF SEARCH. IN VIEW OF THE AFORESAID FACTS AND KEEPING IN MIND THE PRINCIPLES OF LAW LAID DOWN BY DIFFERENT HIGH COURTS, THERE IS NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE CI T (A) DELETING THE ADDITIONS MADE BY THE AO. IN VIEW OF T HE ABOVE, WE REJECT THE GROUNDS RAISED BY THE REVENUE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON 10-05-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER DATED THE 10 TH MAY, 2012 ITA NO.111 OF 2005 SRI R.S. SUDHEESH, HYDERABAD. 20 COPY FORWARDED TO: 1. DCIT, CENTRAL CIRCLE-5, 3 RD FLOOR, SHAKKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. SRI R.S. SUDEESH, PLOT NO.90, WOMENS CO-OP. HOUSING SOCIETY, ROAD NO.5, JUBILEE HILLS, HYDERABA D. 3. THE CIT(A)-IV, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD