HEAT SHRINK TECHNOLOGIES LTD., MUMBAI V. DCIT CC-36, MUMBAI

ITSSA 152/MUM/2005

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 9207 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 11-02-2013
• Assessment Year: misc
• Appeal Filed On: 04-04-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: PRADIP N KAPASI
• Keywords: Depreciation; Transfer pricing; Income from undisclosed sources; Search and seizure; Loose papers; Document seized; Share purchase agreement; Principle of natural justice; Source of fund; Additional evidence; Cost of acquisition; Wrong claim; Corroborative evidences; Block assessment; Reason to believe; Documents seized; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 80HHC; 133A; 131; 132

Judgement Text

ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 1 OF 84 IN THE INCOME TAX APPELLATE TRIBUNAL 'H BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER IT(SS) NO.152/MUM/2005 (BLOCK ASSESSMENT PERIOD 01.04.1987 TO 18.12.1997) HEATSHRINK TECHNOLOGIES LTD, PLOT NO.112, 13 TH ROAD, MIDC MAROL NAKA, ANDHERI (EAST), MUMBAI 400093 PAN: AAACR 2591 J VS. ACIT 8(2), ROOM NO.209/216 A, AAYAKAR BHAVAN, MK ROAD, MUMBAI 400020 (APPELLANT) (RESPONDENT) IT(SS) NO.162/MUM/2005 (BLOCK ASSESSMENT PERIOD 01.04.1987 TO 18.12.1997) ACIT 8(2), ROOM NO.209/216 A, AAYAKAR BHAVAN, MK ROAD, MUMBAI 400020 VS. REPL ENGINEERING LTD. (NOW KNOWN AS HEATSHRINK TECHNOLOGIES LTD), PLOT NO.112, 13 TH ROAD, MIDC MAROL NAKA, ANDHERI (EAST), MUMBAI 400093 PAN: AAACR 2591 J ASSESSEE BY: SHRI PRADIP N. KAPASI DEPARTMENT BY: SHRI K.C.P. PATNAIK, CIT DR DATE OF HEARING: 18/02/2013 DATE OF PRONOUNCEMENT: 10/05/2013 O R D E R PER B. RAMAKOTAIAH, A.M. THESE CROSS APPEALS ARE BY ASSESSEE AND REVENUE FO R THE BLOCK ASSESSMENT PERIOD 1.4.1987 TO 18.12.1997. ASS ESSEE FILED DETAILED CHARTS ON VARIOUS GROUNDS IN BOTH ASSESSEE S AS WELL AS REVENUES APPEALS AND ALSO PLACED PAPER BOOKS RUNNI NG FROM PAGE NOS.1 TO 863. REVENUE ALSO PLACED WRITTEN SUBMISSI ONS AND A PAPER BOOK CONTAINING PAGES 1 TO 161. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 2 OF 84 2. ORIGINALLY, THE APPEAL WAS DISMISSED AS UN-ADMITTED FOR WANT OF PROSECUTION BY ASSESSEE VIDE THE ORDERS DAT ED 27.03.2008 AND IN M.A. NO.307/MUM/2011, THE ORDERS WERE RECALL ED FOR FRESH HEARING. THE CASE WAS ADJOURNED FOR VARIOUS REASONS OVER A PERIOD OF TIME SOMETIMES FOR CONSOLIDATION, SOMETIMES FOR OBTAINING STATEMENTS OF THE DIRECTOR, SOMETIMES FOR OBTAINING COPIES OF THE SEIZED DOCUMENTS ETC. 3. WE HAVE HEARD THE LEARNED COUNSEL SHRI PRADIP N. KA PASI AND THE LEARNED CIT (DR) SHRI K.C.P. PATNAIK. IN AS SESSEES APPEAL, THERE ARE GROUNDS 1 TO 16 CONTESTING THE JURISDICTI ON FOR COMPLETING THE ASSESSMENT IN THE BLOCK ASSESSMENT AND MAKING A DDITIONS IN THE BLOCK ASSESSMENT AND ALSO ON THE ISSUE OF SET O FF OF BUSINESS LOSSES, SET OFF OF DEPRECIATION ON UNABSORBED DEPRE CIATION, SET OFF OF LEASE RENTS AND VARIOUS OTHER ISSUES WHICH ARE CONS IDERED IN THE APPEAL AT LATER POINT OF TIME. THE REVENUE HAS RAIS ED FIFTEEN GROUNDS ON VARIOUS DELETIONS MADE BY THE CIT (A), THAT TOO MOSTLY ON THE REASON THAT THE CIT (A) ADMITTED ADDITIONAL EVIDENC E IN VIOLATION OF RULE 46A. IT(SS) NO.152/MUM/2005: 4. BRIEFLY STATED, A SEARCH AND SEIZURE ACTION UNDER S ECTION 132 OF THE IT ACT HAD TAKEN PLACE ON 18.12.1997 AT THE VARIOUS PREMISES OF ASSESSEE. THE SEARCH TOOK PLACE ALONG W ITH SIMILAR ACTION CARRIED OUT IN THE CASES OF THE DIRECTORS OF THE COMPANY AS WELL AS IN SOME SISTER CONCERNS. DOCUMENTS FOUND WE RE SEIZED AND STATEMENTS OF CONCERNED PERSONS WERE RECORDED. 5. CONSEQUENT TO THE SEARCH AND SEIZURE ACTION, ON REC EIPT OF THE INTIMATION AO ISSUED NOTICE UNDER SECTION 158BC OF THE ACT CALLING FOR THE RETURN FOR THE BLOCK PERIOD WITHIN THE PERIOD OF 30 DAYS. 6. IN COMPLIANCE TO THE SAID NOTICE, THE ASSESSEE COMP ANY FILED RETURN FOR THE BLOCK PERIOD IN THE EXTENDED P ERIOD GRANTED FOR ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 3 OF 84 THE PURPOSE, OFFERING UNDISCLOSED INCOME AT A LOSS OF ` 22,93,24,285. HOWEVER, WHEN AO INITIATED THE ASSESSMENT PROCEEDIN GS FOR THE DETERMINATION OF THE UNDISCLOSED INCOME, THERE WAS NO COMPLIANCE IN THIS DIRECTION. IN THE CIRCUMSTANCE, AO ISSUED S HOW-CAUSE NOTICE REFERRED TO IN THE ASSESSMENT ORDER GRANTING ASSESS EE FINAL OPPORTUNITY TO HAVE ITS SAY IN REGARD TO CERTAIN TR ANSACTIONS REFLECTED IN THE SEIZED RECORD. SINCE THERE WAS NO COMPLIANCE TO THE SAID NOTICE AS WELL, HE PROCEEDED TO PASS AN ORDER EX-PARTE BASED ON HIS BEST JUDGMENT. 7. IN THE SAID ORDER PASSED UNDER SECTION 158BC OF THE ACT, AO HAS DETERMINED THE UNDISCLOSED INCOME OF ASSESSE E AT ` .226.18 CRORES. THE MAJOR AREAS IN RESPECT OF WHICH AO HAS MADE THE ADDITIONS ARE: A) DISALLOWANCE OF LEASE RENT IN RESPECT OF CERTAIN AS SETS. B) DISALLOWANCE OF CLAIM OF DEPRECIATION IN RESPECT OF CERTAIN ASSETS. C) ADDITION ON ACCOUNT OF INVESTMENT IN THE EQUITY CAP ITAL OF THE COMPANY BY OXCAMB INVESTMENT LTD. D) ADDITION ON ACCOUNT OF INVESTMENT IN IMMOVABLE PROPERTIES. E) ADDITION ON THE BASIS OF CERTAIN SEIZED MATERIALS. F) DISALLOWANCE OF INTEREST ON BORROWINGS FROM FINANCI AL INSTITUTIONS. G) REJECTION OF CONTENTION OF CLAIM OF LOSSES. 8. ASSESSEE CONTESTED BEFORE THE CIT (A) MAINLY ON THE PRINCIPLES OF NATURAL JUSTICE, BEING VIOLATED BY AO AND COMPLETING THE ASSESSMENT ORDER EX-PARTE UNDER SECTION 144. SI NCE ASSESSEE COULD NOT MAKE DETAILED SUBMISSIONS, ASSESSEE FURNI SHED VOLUMINOUS DOCUMENTS WITH A PRAYER FOR ADMISSION OF ADDITIONAL ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 4 OF 84 EVIDENCE IN TERMS OF RULE 46A. THE CIT (A) CALLED F OR A REMAND REPORT AND AO SUBMITTED ITS FIRST OF THE REPORT VID E THE LETTER DATED 21.12.2000 AND 29.11.2001. FURTHER REPORTS WERE ALS O CALLED FROM THE AO BY THE SUCCESSOR CIT (A) VIDE LETTER DATED 1 6.01.2004 AND 29.03.2004 RELATING TO ALLEGED INVESTMENT IN IMMOVA BLE PROPERTIES AND UTILIZATION OF LOANS ON WHICH INTEREST HAS BEEN PAID THAT HAS BEEN DISALLOWED. THE REPORTS CALLED FOR WERE SUBMIT TED BY THE DCIT VIDE HIS LETTERS DATED 10.03.2004 AND 18.06.2004 AN D THE REPORTS SO RECEIVED WERE FORWARDED TO ASSESSEE FOR FURTHER COM MENTS. THE CONTENTS OF THE REMARKS AND THE COMMENTS OF ASSESSE E WERE CONSIDERED BY THE CIT (A) WHILE FINALIZING THE APPE AL. EVEN THOUGH THE LEARNED AO AND THE JT. COMMISSIONER OBJECTED T HE ADMISSION OF ADDITIONAL EVIDENCES, THE LEARNED CIT (A) VIDE PARA 18 HAS ADMITTED THE FRESH EVIDENCE IN TERMS OF RULE 46A AND ACCORDI NGLY THE REVENUE IS AGGRIEVED WITH REFERENCE TO THE ADMISSI ON OF FRESH EVIDENCE IN THEIR GROUNDS. 9. AT THE OUTSET, THE LEARNED COUNSEL BRIEFLY EXPLAINE D THE FACTS OF THE CASE TO SUBMIT THAT AO HAS TREATED MAN Y OF THE TRANSACTIONS OF THE PURCHASE AND SALE OF WIND TURBI NE GENERATORS AND PAYMENTS OF LEASE RENTS AS BOGUS AND MADE VARIO US ADDITIONS IN THE BLOCK ASSESSMENT, WHEREAS THE INFORMATION PE RTAINS TO THESE WERE AVAILABLE WITH AO IN THE COURSE OF SURVEY PROC EEDINGS WHICH WERE INITIATED MUCH EARLIER AND INQUIRIES HAVE BEEN CONCLUDED. IT WAS THE SUBMISSION THAT ASSESSEE WAS VOLUNTEERING T O FILE VDIS DECLARATIONS, BUT WAS PREVENTED AT THAT POINT OF TI ME. THEREFORE, PART OF THE SEIZED MATERIAL WAS BASED ON THE VDIS D ECLARATIONS PREPARED BY ASSESSEE. IT WAS THE SUBMISSION THAT TH E INFORMATION OBTAINED IN THE COURSE OF THE SURVEY CANNOT BE UTIL IZED IN THE BLOCK ASSESSMENT. THE DETAILED SUBMISSIONS OF ASSESSEE AR E AS UNDER: A SURVEY ACTION U/S.133A HAS TAKEN PLACE ON 20/02/1997 AT GALA NO.3, BLDG NO.2, DIAMOND INDUSTRIAL ESTATE, NA NI DAMAN, ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 5 OF 84 SPECIFICALLY IN CONNECTION WITH INQUIRIES RELATING TO THE LEASE OF CERTAIN ASSETS BY REPL ENGINEERING LIMITED TO CERTAIN FINAN CIAL INSTITUTIONS ON THE BASIS OF PURCHASES OF ASSETS MADE FROM UNIVE RSAL MOULDERS & FABRICATORS. THIS FACT IS CONFIRMED BY THE LEARNED ASSESSING OFFICER VIDE PAGE NOS. 4-7 OF HIS ORDER OF BLOCK ASSESSMENT DATED 27.12.1999. THE ORDER ALSO CONFIRMS THAT INQUIRIES WERE MADE EVEN PRIOR TO THE SAID SURVEY AND IT WAS IN PURSUANCE OF SUCH INQUIRIES ONLY THAT SURVEY TOOK PLACE. THE LEARNED ASSESSING OFFICER IN THE ORDER ALSO CONFIRMS THAT DURING THE COURSE OF SURVE Y A PHYSICAL VERIFICATION WAS CARRIED OUT AND THE ALLEGED ASSETS WERE FOUND TO BE NON-EXISTENT. HE FURTHER CONFIRMS THAT ANOTHER SURV EY HAD TAKEN PLACE AT VARANASI. IT IS ALSO CONFIRMED THAT DETAIL ED STATEMENTS OF SHRI SUDHIR PETHE, VICE PRESIDENT OF REPL ENGINEERI NG LIMITED (OWNER OF SAID UNIVERSAL MOULDERS & FABRICATORS) WERE RECORDED WHEREIN THE SAID MR. PETHE HAD EXPLAINED THE MODUS OPERANDI OF THE SAID LEASE TRANSACTIONS & HAD CATEGORICALLY STATED THAT THE OPERATIONS WERE CARRIED OUT AS DIRECTED BY SHRI HOMI R.PATEL CHAIRM AN & SHRI B.S.DOCTOR DIRECTOR OF REPL ENGINEERING LIMITED. HE ALSO EXPLAINED THAT LEASE TRANSACTIONS INVOLVED HAWALA TRANSACTION S. SUBSEQUENT TO THE SAID SURVEYS UNDER SECTI ON 133A, SURVEY ACTIONS WERE CARRIED OUT UNDER SECTION 133A IN THE CASE OF THE COMPANY & STATEMENTS ALSO WERE RECORDED UNDER SECTION 131 OF THE DIRECTORS INCLUDING THAT OF KISHORE SHIV DASANI & ARVIND NAIR. THE DETAILS OF TRANSACTIONS IN CONNECTION WIT H THE PURCHASE OF WTG & OF LEASE RENT WERE VERIFIED DURING THE SURVEY ACTIO N & THEREAFTER. IN CONSULTATION WITH THE INCOME TAX AUTHOR ITY THE COMPANY HAD AGREED TO FILE A DECLARATION UNDER VDIS 1997 & THE COMPUTATION OF THE INCOME/LOSS INCORPORATING THE ALLEGED TRANSACTI ON WAS MADE FOR ASST YEAR 1997-1998 & ASST YEAR 1996-1997(ERRONEOUSLY MENTIONED AS ASST YEAR 1996-97 & 1995-96). THIS IS CONFIRMED BY ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 6 OF 84 THE LEARNED ASSESSING OFFICER ON PAGE 6 & 7 OF THE BLOCK ASSESSMENT ORDER. THE SAID DECLARATI ON WAS NOT ACCEPTABLE TO THE INCOME TAX AUTHORITIES & WAS REJECTED AS THE AUTHORITIES DID NOT WISH TO ALLOW THE SET OFF OF TH E UNABSORBED DEPRECIATION OF ABOUT RS.78 CRORES PERTAINING TO AS ST YEAR 1996-97 & 1997-98 FOR WHICH RETURNS WERE ALREADY FILED. THE I NCOME TAX AUTHORITIES ALSO DID NOT WISH TO ALLOW THE SET-OFF OF THE REVENUE EXPENSES OF ABOUT RS.26 CRORES WHICH WERE C APITALIZED IN THE BOOKS OF ACCOUNTS & ALSO REFUSED THE ALLOWANCE OF INTEREST OF RS.7.50 CRORES FORMING PART OF LEASE RENT. THESE FACTS ARE CLEAR ON PAGE NOS. 6 & 7 OF THE ASSESSMENT ORDER. THE ABOVE STATED FACTS CLEARLY CONFIRMED T HAT INQUIRIES WERE CONDUCTED BY THE INCOME TAX AUTHORITIES IN THE MATT ERS OF THE SAID LEASE RENT & WTG MUCH BEFORE THE SEARCH ACTION. IT ALSO CONFIRMS THAT SUBSEQUENT TO SUCH INQUIRIES SUR VEY ACTION WAS CARRIED OUT U/S.133A ON MORE THAN ONE OCCASION WITH THE SPECIFIC INTENTION TO VERIFY THE GENUINENESS OF THE SAID TRA NSACTIONS. IT ALSO CONFIRMS THAT SPECIFIC STATEMENTS WERE RECORDE D OF DIFFERENT PARTIES DIRECTLY CONCERNING THE GENUINENESS OF THE TRANSACTIONS. IT ALSO CONFIRMS THAT THE INCOME PERTAINING TO SUCH NO N- EXISTENT TRANSACTIONS WAS SOUGHT TO BE CONSIDERED FOR THE PU RPOSES OF TAXATION MUCH BEFORE THE DATE OF SEARCH ON 18.2.1997. THE SU RVEY ACTION ALSO CONFIRMED THAT THE TRANSACTIONS WERE NOT GENUINE. IN THE ASSESSEE'S CASE MATERIAL ALLEGIN G NON-EXISTENT WIND TURBINE GENERATORS (WTG) AND ALLEGED BOGUS CLAIM OF LEASE RENTALS WAS COLLECTED UNDER SECTION 133A. THEREFORE, IT COULD NOT BE TAKEN INTO CONSIDERATION IN THE BLOCK ASSESSMENT OF THE A SSESSEE. SECONDLY, THE STATEMENTS OF SHRI DHIRUBHA I DAMANIYA (OWNER OF ADJOINING GALA)[PARA 6 ON PAGE 4 OF ASSESSMENT ORDER FOR THE BLOCK PERIOD] AND SHRI SUDHIR PETHE (PROPRIETOR OF M/S. UNIVERSAL MOULDERS & FABRICATORS)[PARA 6 ON PAGE 4 OF ASSESSMENT ORDER F OR THE BLOCK ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 7 OF 84 PERIOD] WERE RECORDED UNDER SECTION 131 R.W.S. 133A DURING THE COURSE OF SURVEY WHICH COMMENCED ON 20.02.1997 AND IN THE SAID STATEMENTS DETAILED INQUIRY WAS MADE CONCERNING THE TRANSACTIONS OF M/S. REPL ENGG. LTD IN THE MATTERS OF WTGS AND LEA SE TRANSACTIONS. FURTHER STATEMENTS OF KISHORE SHIVDASANI & ARVIND NAIR WERE RECORDED. THIRDLY, A STATEMENT OF INCOME REPRESE NTING THESE TRANSACTIONS WAS MADE UNDER THE GUIDANCE OF THE INC OME TAX AUTHORITIES FOR THE PURPOSES OF DECLARATION UNDER T HE VDIS [PARA 6 ON PAGE 7 OF ASSESSMENT ORDER FOR THE BLOCK PERIOD] MU CH BEFORE THE SEARCH, ONCE AGAIN CONFIRMING THAT THE INCOME TAX A UTHORITIES HAD CLEAR KNOWLEDGE OF THE SAID TRANSACTIONS AND THE NA TURE THEREOF. FOURTHLY, THE LOOSE PAPERS SEIZED IN AN Y CASE, DID NOT IN ANY PLACE SUGGEST THAT THE SAID TRANSACTIONS WERE NON-G ENUINE OR REPRESENTED ANY UNDISCLOSED INCOME. HENCE IT COULD NEVER BE STATED THAT EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH OF ANY UNDISCLOSED INCOME. LASTLY, IT IS SIGNIFICANT TO NOTE THAT N O INQUIRY OF ANY NATURE WAS MADE BY THE A.O. PURSUANT TO/SEARCH WITH ANY OF THE PARTIES TO ESTABLISH THAT THE SAID LOOSE PAPERS REPRESENTED UN DISCLOSED INCOME. THEREFORE, THE A.O. COULD NOT HAVE BEEN IN THE POSSESSION OF ANY MATERIAL TO ESTABLISH THAT THE SAID LOOSE PAPER S REPRESENTED UNDISCLOSED INCOME. THE ABOVE FACTS ARE CONFIRMED B Y THE A.O. AS IS EVIDENT FROM PERUSING PG. 4 TO 6 OF THE ASSESSMENT ORDER FOR THE BLOCK PERIOD UNDER CONSIDERATION. (REFER CI T VS. T.SIVAPRABHAKAR 238 ITR 4S7 (MAD). 10. TO SUPPORT THE CONTENTION THAT MATERIAL COLLECTED U /S.133A COULD NOT BE TAKEN INTO CONSIDERATION FOR THE PURPO SES OF COMPUTING THE UNDISCLOSED INCOME OF THE BLOCK PERIOD THE ASSE SSEE PLACES RELIANCE ON THE FOLLOWING DECISIONS: ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 8 OF 84 (I) G.K. SENNIAPPAN, 284 ITR 220 (MAD.) IN THE INSTANT CASE IT WAS HELD THAT THE WORD 'SUCH ' USED AS A PREFIX TO THE WORD 'EVIDENCE' ASSUMES MUCH SIGNIFIC ANCE, IN THIS PROVISION, AS IT INDICATES ONLY THE EVIDENCE FOUND, AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS, AT THE TIME OF SEARCH. ANY OTHER MATERIAL CANNOT FORM THE BASIS FOR COMPUTATION OF UNDISCLOSED INCOME FOR THE BLOCK PER IOD . (II) DASARI SRI SAILENDRA KUMAR, 27 SOT 33 (VIZAG) (URO) . IN THE INSTANT CASE THE TRIBUNAL HELD THAT THE EXPR ESSION 'SUCH OTHER MATERIAL OR INFORMATION' HAS TO BE RELA TABLE TO THE EVIDENCE FOUND AS A RESULT OF SEARCH. IT DOES NOT T AKE INTO ACCOUNT THE MATERIAL GATHERED OR INFORMATION COLLECTED AS A RES ULT OF SURVEY WHICH IS NOT RELATABLE TO THE MATERIAL FOUND AS A R ESULT OF SEARCH. THEREFORE, THE MATERIAL GATHERED DURING THE COURSE OF SURVEY UNDER SECTION 133A, CANNOT FORM THE BASIS FOR COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD OF ASSESSEE . (III) GAUTHAMCHAND BHANDARI, 95 TTJ 288 (BANG.) IN THE INSTANT CASE IT WAS HELD THAT ONCE T HE ASSESSEE ADMITS ANY UNDISCLOSED INCOME DURING SURVEY IT DOES NOT RE TAIN THE CHARACTER OF UNDISCLOSED INCOME IN THE SEARCH U/S. 132. TO CO MPUTE THE UNDISCLOSED INCOME U/S. 158BC, THE SAME IS TO BE BA SED ON MATERIAL FOUND DURING SEARCH CONDUCTED UNDER SECTION 132 ONL Y AND NOT SURVEY CONDUCTED U/S. 133A . (IV) PRAKASH TULSIDAS, 68 TTJ 479 (NAGPUR) IN THE INSTANT CASE IT WAS HELD THAT ANYTHING FOUND OR DETECTED AS A RESULT OF ACTION U/S. 133A IS OUTSIDE THE SCOPE OF THE ASSESSMENT UNDER CHAPTER XIV-B WHICH DEALS ONLY WIT H ASSESSMENT OF 'UNDISCLOSED INCOME AS A RESULT OF SEARCH'; ANYT HING THAT IS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 9 OF 84 ALREADY ASSESSED UNDER THE REGULAR ASSESSMENT CANN OT AGAIN BE ASSESSED UNDER CHAPTER XIV -B. (V) BOMANNA SWARNA REKHA, 94 TT J 885 (VIZAG) IN THE INSTANT CASE IT WAS HELD THAT NO ADD ITION CAN BE MADE ON THE BASIS OF DEFICIT STOCK FOUND IN THE BUSINESS PR EMISES DURING THE COURSE OF SURVEY ACTION TAKEN UNDER SECTION 133A IN THE BLOCK ASSESSMENT AS IT IS OUTSIDE THE SCOPE OF CHAP TER XIV -B. FROM THE READING OF SECTION 158BA, IT IS EXPRESSLY CLEAR THAT UNDER THIS CHAPTER, THE A.O. SHALL PROCEED TO ASSESS THE UNDIS CLOSED INCOME ONLY IF A SEARCH IS INITIATED U/S. 132 OR THE BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSET ARE REQUISITIONED UNDER SECT ION 132A IN THE CASE OF ANY PERSON. HAD THERE BEEN ANY INTENTION OF THE LEGISLATURE TO MAKE THE ADDITION ON THE BASIS OF THE SURVEY OPERAT IONS CONDUCTED U/S 133A, SECTION 133A WOULD HAVE BEEN INCLUDED IN S. 158BA. THE PRELIMINARY OBJECTION OF THE LEARNED COUNSEL WA S THAT THE ADDITIONS COULD NOT HAVE BEEN MADE IN BLOCK ASSESSM ENT ON THE FINDINGS ALREADY CONCLUDED IN PROCEEDINGS U/S 133A. 11. THE LEARNED CIT (DR) COUNTERING THE SUBMISSIONS OF ASSESSEE FILED THE FOLLOWING NOTE: WITH REGARD TO THE ASSESSMENT OF DEPRECIATION AND LEASE RENT IN THE BLOCK ASSESSMENT YOUR HONOURS HAV E ASKED THE DEPARTMENT TO FILE SUBMISSIONS. THE SUBMISSIONS REGARDING THE ISSUE OF INCLUDING DEPRECIATION DISALLOWANCE AND INCOME FROM LEASE REN T AS UNDISCLOSED INCOME IN THE BLOCK PERIOD ARE AS UNDER : (1) THE WRONG CLAIM OF DEPRECIATION ON NON-EXISTING ASSETS WAS FOUND OUT DURING THE COURSE OF SUCH PROCEEDINGS. THE CONTENTION OF ASSESSEE THAT THIS W AS FOUND OUT IN SURVEY PROCEEDINGS CONDUCTED ON 20.02.1997 IS NOT ACCEPTABLE. THERE ARE SEVERAL SEIZED DOCUMENTS WHICH PROVE THAT ASSESSEE MADE WRONG CLAIM OF DEPRECIATION AND LEASE RENT. THE DETAILS OF SUCH SEIZED DOCUMENTS ARE FURNISHED IN T HE TABLE BELOW: ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 10 OF 84 S.NO SEIZED MATERIAL OR STATEMENT IDENTIFICATION NO. DESCRIPTION AO REFERENCE 1 PAGE NO.13 & 41 ANNEX-A PROPOSED VDIS DECLARATION WITHDRAWING LEASE RENT OF 13.80 CR. AND DEPRECIATION OF 59.51 CR. AO PAGE NO.6 TO 7 2 PAGE NO.1 OF ANNEX.A 1 DETAILS OF WIND ENERGY EQUIPMENTS WITH CONNECTION DATE PAGE 7 AO AND PAGE NO 15 AO 3 LETTER OF GUJARAT ENERGY DEVELOPMENT AGENCY DATED 29.12.1997 INFORMING AO THAT THE COMMISSIONING CERTIFICATES ARE NOT GENUINE IN 20 CASES POST SEARCH INVESTIGATION. AO PAGE 8 TO 9 4 STATEMENT OF B.S. DOCTOR UNDER SECTION 132(4) DATED 18.12.1997 THE STATEMENT WAS IN COURSE OF SEARCH AND DIRECTOR ADMITTED BOGUS DEPRECIATION AND BOGUS LEASE RENTALS OF 114.08 CR. AO PAGE 9 TO 10 5 STATEMENT OF HOMI J. PATEL UNDER SECTION 132(4) RECORDED ON 27.12.1997 STATEMENT RECORDED IN THE COURSE OF SEARCH AND THE MANAGING DIRECTOR ACCEPTED THAT COMMISSIONING CERTIFICATE WERE NOT GENUINE AO PAGE 10 6 PAGE NO.2 ANNEXURE A1 SEIZED PAPER CONTAINING THE NAMES OF BOGUS SUPPLIERS LIKE M/S UNIVERSAL MOULDERS AND FABRICATORS, M/S XI PLAST, M/S. RUPALI PLASTICS, M/S. AVON MOULDINGS PVT. LTD, M/S. AVON PLASTICS PVT. LTD AO PAGE 15 7 PAGE NO.12 AND 13 OF ANNEXURE A1 INDICATES CALCULATION OF LEASE RENT WHICH IS NOT GENUINE AND WAS PROPOSED TO BE WITHDRAWN. AO PAGE 16 8 PAGE NO.41 OF ANNEXURE A RELATES TO PROPOSED VDIS DECLARATION FOR AY 95-96 INDICATING WRONG CLAIM AO PAGE 16 9 PAGE NO.13 ANNEXURE A2 LETTERS FROM MARDIA LEASING AND FINANCIAL SERVICES LTD REGARDING COMMISSIONING OF WIND MILLS AO PAGE 18 10 PAGE NO.41 ANNEX.A2 LETTERS RELATING TO BOGUS LEASE CLAIM AO PAGE 19 11 PAGE 8 ANNEXURE A2 FAX MESSAGE FROM HOMI J. PATEL, REGARDING WIND MILLS AO PAGE 25 ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 11 OF 84 (2) THE ABOVE LIST IS ONLY INDICATIVE AND NOT EXHAUSTIVE. THERE ARE SEVERAL REFERENCES TO INCRIMINATING MATER IAL FOUND DURING COURSE OF SEARCH RELATING TO DEPRECIAT ION AND LEASE RENTALS. (3) THE SEARCH TOOK PLACE ON 18.12.1997. THE DDI INVESTIGATION WROTE A LETTER TO GUJARAT ENERGY DEVELOPMENT AUTHORITY ON 26.12.1997, MAKING ENQUIRY REGARDING THE COMMISSIONING CERTIFICATES OF WIND MILLS. GUJARAT ENERGY DEVELOPMENT AUTHORITY REPLIED ON 29.12.1997 THAT THE CERTIFICATES ARE NOT GENUINE. THIS WAS DURING THE COURSE OF SEARCH AND POST SEARCH ENQUIRY. (4) THE STATEMENTS OF VARIOUS DIRECTORS HAVE BEEN RECORDED U/S 132(4). THE STATEMENT OF B.S.DOCTOR HA S BEEN RECORDED U/S.132(4) ON 18.12.1997. HE HAS SURRENDERED AN AMOUNT OF RS.114.08 CRORES RELATING TO BOGUS CLAIM OF DEPRECIATION AND LEASE RENT. THIS IS TO BRING TO THE KIND NOTICE OF YOUR HONOURS THAT TH E STATEMENT WAS DURING THE COURSE OF THE SEARCH AND NOT DURING THE COURSE OF SURVEY. THE CONTENTS OF TH E STATEMENT HAVE BEEN AGAIN RATIFIED BY THE STATEMENT OF HOMI J . PATEL RECORDED ON 27.12.1997. THE DIRECTORS HAVE STATED THAT THE BOGUS COMMISSIONING CERTIFICATES MUST HAVE BEEN AN IN HOUSE CREATION. (5) THE CIT(A) IN THE COURSE OF DECIDING APPEALS F OR THE REGULAR ASSESSMENT HAS ALSO HELD THAT THE DISALLOWANCE OF DEPRECIATION AND LEASE RENT HAS TO BE TAXED IN THE BLOCK ASSESSMENT. THE ORDER OF CIT(A) IN APPEAL NO : CIT(A) VIII/ IT-318 /2000-2001, DATED : 06.01.2005 [OR ASSESSMENT YEAR : 1997-98, INDICATES THAT THE DISALLOWANCES ARE TO BE MADE ONLY IN BLOCK ASSESSMENT. THE CIT (A) HAS DISCUSSED THIS ISSUE IN PARAGRAPHS 12 TO 15 OF HIS ORDER CITED SUPRA. THE ASSESSEE HAS ACCEPTED THIS CONTENTION OF CIT BY NOT FILING APPEAL AGAINST THIS ORDER. THEREFORE, THE IS SUE HAS BECOME FINAL. THE ASSESSEE CANNOT CONTEST THIS ISSUE AGAIN IN BLOCK ASSESSMENT APPEAL PROCEEDINGS BEFORE YOUR HONOUR. WE RELY ON DECISION OF BOMBAY HIGH COURT IN THE CASE OF SUDHAKAR T.PENDSE 323 ITR 22 (BOM)) FOR THE PROPOSITION THAT ONCE PARTICU LAR STAND HAS BEEN ACCEPTED BY THE TAX PAYER HE WOULD NOT BE PERMITTED TO TAKE A CONTRADICTORY STAND ON T HE SAME ISSUE AGAIN BEFORE A HIGHER AUTHORITY. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 12 OF 84 THIS GENERAL SUBMISSION IS ON ISSUE OF JURISDICTION TO MAKE ADDITIONS IN THE BLOCK ASSESSMENT, MAINLY CONTESTED IN GROUND NO. 2. THE SUBMISSIONS ON OTHER GROUNDS ARE ALSO E XTRACTED BEFORE DECIDING THE ISSUES, WHICH ARE AS FOLLOWS. 12. GROUND NOS. 3 TO 5 OF ASSESSEES APPEAL IS WITH REFERENCE TO SET OFF OF UNABSORBED BUSINESS AND DEPRECIATION LOS S (ACCOUNTED AND UNACCOUNTED). 12.1 IN THE ASSESSMENT, AO HELD THAT EXPLANATION TO 158BB MADE CLEAR THAT THE UNDISCLOSED INCOME IS TO BE WORKED O UT WITHOUT GIVING EFFECT TO SET OFF OF B/FWD LOSSES UNDER CHAP TER VI OR UNABSORBED DEPRECIATION UNDER SECTION 32(2). NO VAR IATION IN THE POSITION OF UNABSORBED LOSS OR DEPRECIATION IS ACCO RDINGLY PERMITTED WHILE ACTING UNDER SECTION 158BB. 12.2 BEFORE THE CIT(A), IT WAS SUBMITTED THAT NET U NDISCLOSED INCOME FOR AY 1993-94 TILL 1997-98 AND ALSO FOR THE BROKEN PERIOD OF THE BLOCK IS NEGATIVE AND SUCH UNACCOUNTED LOSS BE ADJUSTED AGAINST THE UNDISCLOSED INCOME, IF ANY, FOR THE BLO CK PERIOD. PROVISIONS OF SECTION 158C FOR SET OFF OF LOSSES IS IN RELATION TO THOSE LOSSES WHICH WERE INCURRED IN REGULAR COURSE OUT OF DULY ACCOUNTED TRANSACTIONS. SUCH AN EMBARGO DOES NOT APPLY TO THE LOSSES FOR THE BLOCK PERIOD RELATING TO UNACCOUNTED TRANSACTIONS. WITHOUT SUCH SET OFF THE INCOME THAT WOULD BE TAXED UNDER CHAPTE R XIV-B WOULD NOT REPRESENT TRUE UNDISCLOSED INCOME OF THE BLOCK PERIOD. ITAT MUMBAI BENCH IN THE CASE OF BDA INDUSTRIES LTD 64 I TD 501 HAS HELD THAT THE UNACCOUNTED LOSSES HAVE TO BE SET OFF AGAINST THE UNACCOUNTED INCOME OF THE BLOCK PERIOD. 12.3 THE LEARNED CIT (A) DID NOT AGREE FOR THE FOLL OWING REASONS: (I) SECTION 158B(1)(A) PROVIDES THAT THE TOTAL INCOME O R LOSS OF EACH PREVIOUS YEAR IS TO BE DETERMINED WITHOUT TAKI NG INTO ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 13 OF 84 ACCOUNT THE BROUGHT FORWARD LOSS OR UNABSORBED DEPR ECIATION UNDER SECTION 32(2) OF THE ACT. (II) SECTION 158B(4) PROVIDES THAT LOSSES BROUGHT FORWAR D UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SECTION 32(2) SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BLOCK ASSESSMENT BUT MAY BE CARRI ED FORWARD FOR BEING SET OFF IN THE REGULAR ASSESSMENT . (III) ASSESSEES CLAIM HAS BEEN THAT SINCE THE DEPRECIATI ON AMOUNT COULD NOT BE ALLOWED AS DEDUCTION FOR WANT OF ADEQU ATE PROFITS IN TWO ASSESSMENT YEARS, THERE WAS NO CASE FOR TAKING THESE INADMISSIBLE AMOUNTS AS PART OF THE UNDISCLOS ED INCOME. THERE IS ALSO NO CASE FOR HOLDING THAT ANY PART OF THE SAID CARRIED FORWARD AMOUNT IF FOUND INADMISSIBLE C ANNOT BE TAKEN AS PART OF THE TOTAL INCOME IN THE COMPUTATIO N OF THE UNDISCLOSED INCOME. 12.4 IT WAS SUBMITTED BEFORE US THAT: (A) NET UNDISCLOSED INCOME FOR AY 1993-94 TILL 1997-98 AND ALSO FOR THE BROKEN PERIOD OF THE BLOCK IS NEGATIVE AND SUCH UNACCOUNTED LOSS BE ADJUSTED AGAINST THE UNDISCLOSE D INCOME, IF ANY, FOR THE BLOCK PERIOD. (B) PROVISION OF SECTION 158C FOR SET OFF OF LOSSES IN RELATION TO THOSE LOSSES WHICH WERE INCURRED IN REGULAR COURSE OUT OF DULY ACCOUNTED TRANSACTIONS. SUCH AN EMBARGO DOES N OT APPLY TO THE LOSSES OF THE BLOCK PERIOD RELATING TO UNACCOUNTED TRANSACTIONS. (C) WITHOUT SUCH SET OFF THE INCOME THAT WOULD BE TAXED UNDER CHAPTER XIV-B WOULD NOT REPRESENT TRUE UNDISCLOSED INCOME OF THE BLOCK PERIOD. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 14 OF 84 (D) ITAT MUMBAI BENCH IN THE CASE OF BDA INDUSTRIES LTD 64 ITD 501 HAS HELD THAT THE UNACCOUNTED LOSSES HAVE TO BE SET OFF AGAINST THE UNACCOUNTED INCOME OF THE BLOCK PERIOD. (E) THE LEARNED CIT (A) FAILED IN APPRECIATING THAT SEC TION 158(1) PROHIBITED SET OFF OF LOSSES AND DEPRECIATION THAT WERE ACCOUNTED. THE SAID PROVISIONS APPLIED BY HIM DOES NOT PROHIBIT SET OFF OF UNACCOUNTED LOSS AND DEPRECIATI ON. 12.5 THE CASE LAW RELIED UPON BY ASSESSEE WITH REGARD TO SET OFF OF LOSSES IS AS FOLLOWS: I) AMRITSAR PROCESSOR P LTD (2006) 154 TAXMAN 33 (ASR. ) II) E.K. LINGAMURTHY VS. SETTLEMENT COMMISSION (2009) 222 CTR I/19 III) DTR/99/178 TAXMAN 116/314 ITR 305 (SC) IV) BDA INDUSTRIES LTD, 64 ITD 501 (MUM). 12.6 WITH REGARD TO SET OFF OF DEPRECIATION, AS SESSEE RELIED UPON THE FOLLOWING CASE LAW: I) N.R. PANDURANGA SETTY (2006) 100 TTJ 424 (BANG) (TRIB.) II) C. SABIRA (2010) 40 DTR 153 (KER.) HC III) H.E. DISTILLERIES P LTD (2010) 229 CTR 457/34 DTR 2 99 (KAR.)HIGH COURT 13. GROUND NO.6 OF ASSESSEES APPEAL IS WITH REFERENCE TO ADDITION FOR LEASE RENT CLAIMED FOR THE AYS 1993-94 TO 1997-98 FOR A TOTAL AMOUNT OF ` .20,70,06,500. 13.1 AO HELD THAT THERE IS EVIDENCE THAT ASSESS EE HAS CLAIMED LEASE RENTALS ON NON EXISTING ASSETS AND SHRI SUDHI R PETE, SHRI HOMI PATEL AND SHRI B.S. DOCTOR HAVE CATEGORICALLY ADMITTED THIS POSITION. IN AY 1993-94 AO ASSESSED THE UNDISCLOSED INCOME AT ` 35,06,500 ON THE GROUND THAT THE SAID AMOUNT REPRES ENTED CLAIM OF DEPRECIATION ON A NON EXISTING ASSETS AND AO HAS RELIED ON THE CLAIM WHERE THE SAID IDBI HAD ASKED THE COMPANY TO BEAR TAX RELATING TO THE TRANSACTION. IN AY 1994-95 AO HAS A SSESSED THE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 15 OF 84 UNDISCLOSED INCOME AT ` .96 LAKHS ON THE GROUND THAT THE CLAIM OF LEASE RENTALS OF ` .88.00 LAKHS PAID TO IDBI AND ` .8.00 LAKHS PAID TO LKP MERCHANTS WERE BOGUS. IN ADDITION HE HAS NOT AL LOWED THE ENHANCED CLAIM FOR DEDUCTION UNDER CHAPTER VI-A AS THERE WAS NO AUTHORITY IN LAW TO DO SO. IN AY 1995-96 TO 1997-98 , AO HAS NOT GIVEN ANY REASON, NOR ANY COMMENT IN SUPPORT OF HIS ACTION. 13.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE L EASE RENT WAS PAID BY A/C PAYEE CHEQUE, DULY ACCOUNTED IN THE BOO KS OF ACCOUNT AND IT WAS REGULARLY ALLOWED AS DEDUCTION IN THE RE GULAR ASSESSMENTS. IT WAS THE SUBMISSION THAT NO EVIDENCE WAS FOUND DURING SEARCH TO ESTABLISH THAT LEASE RENT PAID WAS BOGUS. AO HAS NOT IDENTIFIED THE RELEVANT LOOSE PAPERS RELYING ON WHICH HE HAS ADDED THE LEASE RENT AS UNDISCLOSED INCOME. ASSESSE E NOWHERE STATED THAT THE LEASE RENT CLAIMED WAS A BOGUS EXPE NDITURE AND THE ENTIRE LEASE RENT CLAIMED WAS DISALLOWED IN BLOCK A SSESSMENT WITHOUT EVEN IDENTIFYING THE PAYEES OR INQUIRING WI TH THEM ABOUT THE GENUINENESS. ALSO THERE WAS NO REASON TO BELIEV E THAT THE ENTIRE LEASE RENT WAS BOGUS WITHOUT ANY EVIDENCE OR INQUIR Y LEADING TO SUCH FINDINGS. 13.3 WITHOUT PREJUDICE IT WAS CLAIMED THAT THE LEA SE RENT REPRESENTED INTEREST PAID TO FINANCIAL INSTITUTION AND BANKS FOR GENUINE BORROWINGS UTILIZED FOR THE PURPOSES OF THE BUSINESS, A FACT WHICH IS NOT IN DISPUTE AT ALL AND WHICH IS CONFIRM ED BY THE LEARNED CIT (A). THE DEDUCTION FOR INTEREST (LEASE RENT) DI D NOT REPRESENT ANY UNDISCLOSED INCOME AS THE CLAIM THEREOF WAS GENUINE AND LEGAL. THE PAYMENT OF LEASE RENT WAS PART OF THE OVERALL SCHEM E FOR RAISING FUNDS FOR BUSINESS AND THE NET UNDISCLOSED INCOME, IF ANY RELATING TO THE ENTIRE SCHEME SHOULD ONLY BE TAXED. THE COMP ANY WAS IN DIRE NEEDS OF FINANCE FOR MEETING ITS WORKING CAPITAL RE QUIREMENTS AND ALSO FOR OTHER PURPOSES OF BUSINESS. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 16 OF 84 13.4 UNDER THE ROUTE SUGGESTED BY FINANCIAL INSTITU TION, THE COMPANY SOLD AN ASSET TO THE FINANCIAL INSTITUTION, THE SALE CONSIDERATION PAID BY THE FINANCIAL INSTITUTION FOR ACQUIRING THE ASSETS FROM THE COMPANY WAS NOTHING BUT THE LOAN PR OVIDED BY THE SAID FINANCIAL INSTITUTION. THE FINANCIAL INSTITUTI ON WOULD IN TURN LEASE BACK THE SAME ASSET TO THE COMPANY AND THE CO MPANY WAS REQUIRED TO PAY LEASE RENT TO THE FINANCIAL INSTITU TIONS WHICH IN FACT REPRESENTED THE INSTALLMENT FOR REPAYMENT OF LOAN A ND INTEREST FOR THE PERIOD. 13.5 THE PAYMENT OF LEASE RENT WAS SO STRUCTURED T HAT THE AGGREGATE OF LEASE RENT OVER A PERIOD OF LEASE MATC HED THE AMOUNT OF LOAN AND THE INTEREST THEREON AT THE MARKET RATE. S ECTION 158B(B), DEFINITION OF UNDISCLOSED INCOME EXCLUDES AN INCOME WHICH IS REPRESENTED BY AN ENTRY IN THE BOOKS OF ACCOUNT. TH E CLAIM OF THE COMPANY WAS MADE IN DETERMINING THE REGULAR INCOME OR PROFIT FOR THE YEAR AND WAS CONSIDERED BY AO IN REGULAR ASSESS MENTS UPTO AY 1997-98. SECTION 158BA/BB ALSO EXCLUDE THE ACCOUNTE D TRANSACTION FROM THE PURVIEW OF BLOCK ASSESSMENTS. 13.6 IT WAS ALSO SUBMITTED BEFORE THE LEARNED C IT (A) THAT ONCE IT IS HELD THAT THE INCOME PERTAINING TO EXCESSIVE CLA IM WAS THE SUBJECT MATTER OF REGULAR ASSESSMENT AS IS DULY CON SIDERED IN THE ASSESSMENT ORDER OF AY 1997-98, THE ADDITIONS IN RE SPECT OF EACH OF THE ASSESSMENT YEARS SHOULD BE EXCLUDED FROM THE PU RVIEW OF BLOCK ASSESSMENT. HON'BLE GUJARAT HIGH COURT IN THE CASE OF N.R. PAPER & BOARD LTD 101 TAXMAN 525 HELD THAT THE PROCEEDINGS IN BLOCK ASSESSMENT ARE TOTALLY DIFFERENT FROM THE PROCEEDIN GS IN REGULAR ASSESSMENT AND THAT A SUBJECT MATTER OF ONE ASSESSM ENT COULD NOT BE THE SUBJECT MATTER OF BLOCK ASSESSMENT. THE EXCE SSIVE ELEMENT OF CLAIM COULD HAVE BEEN DETERMINED ONLY AFTER REDUCIN G THE LEASE RENT BY THE AMOUNT OF INTEREST AND THE AMOUNT OF PAPER P ROFIT. IT IS ONLY THE EXCESS NET CLAIM OF EXPENDITURE IF ANY THAT COU LD BE TREATED AS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 17 OF 84 UNDISCLOSED INCOME UNDER CHAPTER XII-B. INSTEAD OF BRINGING TO TAX, THE NET INCOME RELATING TO THE TRANSACTION DISALLOW ED THE ENTIRE AMOUNT THAT WAS DEBITED AS LEASE RENT AND TREATED T HE AMOUNT SO DISALLOWED AS UNDISCLOSED INCOME FOR THE BLOCK PERI OD. THE COMPANY HAD IN FACT INFLATED ITS PROFIT BY AN AMOUN T OF ` .20,45,12,686 ON ACCOUNT OF THE ACTIVITY OF RAISING FINANCE AND CLAIMING LEASE RENT AND HAD ACCORDINGLY SHOWN HIGHE R PROFIT. THE SAID AMOUNT WAS OFFERED FOR TAXATION AND WAS CONSID ERED IN DETERMINING THE TOTAL INCOME FOR THE RESPECTIVE AY WHICH SHOULD BE REDUCED IN ASCERTAINING TRUE UNDISCLOSED INCOME FOR THE BLOCK PERIOD. THUS, THERE WAS NO UNDERSTATEMENT OF INCOME IN RESPECT OF THIS ACTIVITY AND THE COMPANY WAS NOT IN POSSESSION OF ANY UNDISCLOSED INCOME. AO INSTEAD OF REDUCING THE PROF IT, ADDED AN AMOUNT OF ` .20,71,06,500 TO THE INCOME THAT WAS NOT AS A REGUL AR INCOME BUT AS THE UNDISCLOSED INCOME UNDER CHAPTER XIV-B. THE ACTION OF AO HAS RESULTED IN DOUBLE TAXATION OF A N ON EXISTING INCOME WHEREIN AO IN ASSESSMENT FOR AY 1997-98 HAD DISALLOWED CLAIM OF LEASE RENTALS ON NON EXISTING ASSETS OF ` .14,73,48,444. 13.7 FOR EXAMPLE, A WIND MILL ON PAPER WAS SOLD TO THE FINANCE INSTITUTION FOR PROFIT, FOR SUCH SALE THE COMPANY W AS PAID CONSIDERATION (LOAN) BY THE FINANCIAL INSTITUTION B Y A/C PAYEE CHEQUE DEPOSITED IN THE BANK A/C OF THE COMPANY. TH E CONSIDERATIONS RECEIVED WERE UTILIZED FOR PURPOSES OF BUSINESS. THE FINANCIAL INSTITUTION IN TURN LEASED BACK THE SAID ASSET TO THE COMPANY FOR AN APPARENT CONSIDERATION OF LEASE RENT . THE PERIOD OF LEASE RENT WERE STRUCTURED TO MATCH THE REPAYMENT P ERIOD OF LOAN TOGETHER WITH INTEREST THEREON. THE FICTITIOUS PROF IT ON SALE WAS OFFERED FOR TAXATION. 13.8 THE LEARNED CIT (A) RELYING IN THE CASE O F ELEGANT HOMES PVT LTD, 177 ITR 261 (RAJ.) THAT IN CHAPTER XIVB SP ECIAL PROVISION OF ASSESSMENT IN SEARCH CASES HAVE BEEN GIVEN AND IF A NY AMOUNT OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 18 OF 84 INCOME HAS NOT BEEN TAXED AND DURING THE COURSE OF SEARCH SOME UNDISCLOSED INCOME IS FOUND ON THE BASIS OF MATERIA LS SEIZED, THAT SHOULD BE TREATED AS UNDISCLOSED INCOME. ALSO IN TH E CASE OF AJAY KUMAR SHARMA 259 ITR 240 (RAJ.) IT HAS BEEN HELD TH AT MERELY BECAUSE SOME ENTRIES ARE SHOWN IN THE BOOKS OF ACCO UNT THAT DOES NOT PROHIBIT AO FROM TAXING THAT AMOUNT IN THE BLOC K ASSESSMENT, IF THE AMOUNTS HAVE NOT BEEN TAXED IN THE REGULAR A SSESSMENT AND MATERIAL HAS BEEN FOUND IN THE COURSE OF SEARCH TO SUPPORT HIS ACTION. 13.9 IT WAS ALSO THE REASONING BY THE LEARNED C IT (A) THAT AMENDMENTS BOTH IN SECTION 158B(B) DEFINING UNDISCL OSED INCOME AND IN SECTION 158BB(1) RELATING TO COMPUTATION OF UNDISCLOSED INCOME BY FINANCE ACT, 2002 ARE RETROSPECTIVELY W.E .F. 01.07.1995. THE SAID AMENDMENT SPECIFICALLY INCLUDE THEREIN INC OME BASED ON ENTRIES IN BOOKS OF ACCOUNT OR OTHER DOCUMENTS WHIC H REPRESENT FALSE CLAIM OF ANY EXPENSE, DEDUCTION OR ALLOWANCE. IN THE LIGHT OF AMENDMENT MADE BY FINANCE ACT, 2002 THE POSSIBILITY OF HAVING TWO OPINION ON THE MATTER IS CLEARLY ELIMINATED AND AO IS AT LIBERTY TO EXAMINE IN A BLOCK ASSESSMENT PROCEEDINGS AN ENT RY RECORDED IN REGULAR BOOKS OF ACCOUNT, IF ON THAT ACCOUNT SOME I NCRIMINATING DOCUMENT IS FOUND DURING THE COURSE OF PROCEEDINGS. ACCORDING TO THE LEARNED CIT (A) THE SAID TRANSACTION ENTERED IN TO BY ASSESSEE WAS NOT A GENUINE SALE AND LEASE BACK TRANSACTION. ASSESSEE HAD SHOWN PAYMENTS HAVING BEEN MADE FOR THE PURCHASE OF THE ASSETS TO THESE NON EXISTENT CONCERNS. AUTHORIZED REPRESEN TATIVE HAS NOT REBUTTED THIS OBSERVATION OF AO IN THE REMAND REPOR T. THE FINANCE OBTAINED IN THE FORM OF SALE CONSIDERATION UNDER TH E ARRANGEMENT HAS NOT REMAINED IN THE BUSINESS OF THE ASSESSEE CO MPANY TO BE UTILIZED FOR THE SAID PURPOSE BUT HAS BEEN TAKEN OU T FROM THE BUSINESS BY PAYMENTS TO NON EXISTENT AND NON GENUIN E SUPPLIERS. THEREFORE, THE CLAIM OF ASSESSEE FOR THE ADMISSIBIL ITY OF DEDUCTION OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 19 OF 84 INTEREST COMPONENT RELATING TO AND FORMING PART OF THE LEASE RENT CANNOT BE ACCEPTED. 13.10 BEFORE US ASSESSEES MAIN SUBMISSIONS ARE AS UNDER: (1) LEASE RENT WAS PAID BY A/C PAYEE CHEQUE, DULY ACCOUNTED IN THE BOOKS OF ACCOUNT AND IT WAS REGULARLY ALLOWE D AS DEDUCTION IN THE REGULAR ASSESSMENTS. IT WAS THE SU BMISSION THAT NO EVIDENCE WAS FOUND DURING SEARCH TO ESTABLI SH THAT LEASE RENT PAID WAS BOGUS. AO HAS NOT IDENTIFIED TH E RELEVANT LOOSE PAPERS RELYING ON WHICH HE HAS ADDED THE LEAS E RENT AS UNDISCLOSED INCOME. ASSESSEE NOWHERE STATED THAT TH E LEASE RENT CLAIMED WAS A BOGUS EXPENDITURE AND THE ENTIRE LEASE RENT CLAIMED WAS DISALLOWED IN BLOCK ASSESSMENT WIT HOUT EVEN IDENTIFYING THE PAYEES OR INQUIRING WITH THEM ABOUT THE GENUINENESS. ALSO THERE WAS NO REASON TO BELIEVE TH AT THE ENTIRE LEASE RENT WAS BOGUS WITHOUT ANY EVIDENCE OR INQUIRY LEADING TO SUCH FINDINGS. (2) WITHOUT PREJUDICE THE LEASE RENT REPRESENTED INTEREST PAID TO FINANCIAL INSTITUTION AND BANKS FOR GENUINE BORROWINGS UTILIZED FOR THE PURPOSES OF THE BUSINESS, A FACT W HICH IS NOT IN DISPUTE AT ALL AND WHICH IS CONFIRMED BY THE LEA RNED CIT (A). THE DEDUCTION FOR INTEREST (LEASE RENT) DID NO T REPRESENT ANY UNDISCLOSED INCOME AS THE CLAIM THEREOF WAS GEN UINE AND LEGAL. THE PAYMENT OF LEASE RENT WAS PART OF THE OV ERALL SCHEME FOR RAISING FUNDS FOR BUSINESS AND THE NET U NDISCLOSED INCOME, IF ANY RELATING TO THE ENTIRE SCHEME SHOULD ONLY BE TAXED. THE COMPANY WAS IN DIRE NEEDS OF FINANCE FOR MEETING ITS WORKING CAPITAL REQUIREMENTS AND ALSO FOR OTHER PURPOSES OF BUSINESS. (3) UNDER THE ROUTE SUGGESTED BY FINANCIAL INSTITUT ION, THE COMPANY SOLD AN ASSET TO THE FINANCIAL INSTITUTION, THE SALE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 20 OF 84 CONSIDERATION PAID BY THE FINANCIAL INSTITUTION FOR ACQUIRING THE ASSETS FROM THE COMPANY WAS NOTHING BUT THE LOA N PROVIDED BY THE SAID FINANCIAL INSTITUTION. THE FIN ANCIAL INSTITUTION WOULD IN TURN LEASE BACK THE SAME ASSET TO THE COMPANY AND THE COMPANY WAS REQUIRED TO PAY LEASE R ENT TO THE FINANCIAL INSTITUTIONS WHICH IN FACT REPRESENTE D THE INSTALLMENT FOR REPAYMENT OF LOAN AND INTEREST FOR THE PERIOD. (4) THE PAYMENT OF LEASE RENT WAS SO STRUCTURED THA T THE AGGREGATE OF LEASE RENT OVER A PERIOD OF LEASE MATC HED THE AMOUNT OF LOAN AND THE INTEREST THEREON AT THE MARK ET RATE. SECTION 158B(B), DEFINITION OF UNDISCLOSED INCOME E XCLUDES AN INCOME WHICH IS REPRESENTED BY AN ENTRY IN THE BOOK S OF ACCOUNT. THE CLAIM OF THE COMPANY WAS MADE IN DETER MINING THE REGULAR INCOME OR PROFIT FOR THE YEAR AND WAS C ONSIDERED BY AO IN REGULAR ASSESSMENTS UPTO AY 1997-98. SECTI ON 158BA/BB ALSO EXCLUDE THE ACCOUNTED TRANSACTION FRO M THE PURVIEW OF BLOCK ASSESSMENTS. (5) IT WAS ALSO SUBMITTED BY ASSESSEE BEFORE US THA T ONCE IT IS HELD THAT THE INCOME PERTAINING TO EXCESSIVE CLAIM WAS THE SUBJECT MATTER OF REGULAR ASSESSMENT AS IS DULY CON FIRMED BY THE ASSESSMENT ORDER OF AY 1997-98, THE ADDITIONS I N RESPECT OF EACH OF THE ASSESSMENT YEARS SHOULD BE EXCLUDED FROM THE PURVIEW OF BLOCK ASSESSMENT. HON'BLE GUJARAT HIGH C OURT IN THE CASE OF N.R. PAPER & BOARD LTD 101 TAXMAN 525 H ELD THAT THE PROCEEDINGS IN BLOCK ASSESSMENT ARE TOTALLY DIF FERENT FROM THE PROCEEDINGS IN REGULAR ASSESSMENT AND THAT A SU BJECT MATTER OF ONE ASSESSMENT COULD NOT BE THE SUBJECT M ATTER OF BLOCK ASSESSMENT. STATEMENT ON OATH NOWHERE CONFIRM S THAT THE AMOUNT OF LEASE RENT REPRESENTED SUPPRESSION OF PROFIT IN ITS ENTIRETY. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 21 OF 84 (6) THE DECISION RELIED UPON BY THE CIT (A) ARE ON DIFFERENT FACTS AS HE HIMSELF HAS HIGHLIGHTED THAT IT IS POSS IBLE TO DISREGARD THE ACCOUNTS ONLY ON THE BASIS OF MATERIA L SEIZED DURING THE COURSE OF SEARCH. NEITHER AO NOR THE LEA RNED CIT (A) HAS HIGHLIGHTED OR SPECIFIED ANY SEIZED MATERIA L TO SUPPORT THE ACTION. (7) THE AMENDMENT TO THE FINANCE ACT 2002 DID NOT DISPENSE WITH THE NEED FOR THE SEIZED MATERIAL AND FINDINGS THEREON. THE AMENDMENT DOES NOT CURE THE DEFICIENCY ARISING ON ACCOUNT OF WANT OF SEIZED MATERIAL WHICH IS A SINE QUA NON FOR THE ADDITION IN CHAPTER XIVB, THE LEARNED CIT (A) H IMSELF CONFIRMED THIS POSITION IN LAW. THE AMENDMENT IN AN Y CASE WAS INAPPLICABLE TO THE CASE OF A SEARCH WHICH TOOK PLACE ON 18.12.1997 AND IMPORTANTLY TO A BLOCK ASSESSMENT OR DER PASSED ON 29.12.1999. NO MATERIAL IS RELIED UPON BY THE LEARNED CIT (A) TO CONCLUDE THAT THE TRANSACTION OF SALE AND LEASE BACK WERE NOT GENUINE. THE LEARNED CIT (A) HA S NOT GIVEN ANY FINDINGS AS TO WHY THE NET INCOME ON THE ACTIVITY OF RAISING FINANCE SHOULD ALONE NOT BE TAXED. HE HAS I N FACT NOT ADJUDICATED UPON THIS REQUEST. (8) WITHOUT PREJUDICE IT WAS SUBMITTED THAT: (I) THE EXCESSIVE ELEMENT OF CLAIM COULD HAVE BEEN DETERMINED ONLY AFTER REDUCING THE LEASE RENT BY THE AMOUNT OF INTEREST AND THE AMOUNT OF PAPER PROFIT. (II) IT IS ONLY THE EXCESS NET CLAIM OF EXPENDITURE , IF ANY, THAT COULD BE TREATED AS UNDISCLOSED INCOME UNDER CHAPTE R XII-B. (III) INSTEAD OF BRINGING TO TAX THE NET INCOME REL ATING TO THE TRANSACTION DISALLOWED ENTIRE AMOUNT THAT WAS DEBIT ED AS LEASE RENT AND TREATED THE AMOUNT SO DISALLOWED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 22 OF 84 (IV) THE COMPANY HAD IN FACT INFLATED ITS PROFIT BY AN AMOUNT OF ` .20,45,12,686 ON ACCOUNT OF THE ACTIVITY OF RAISING FINANCE AND CLAIMING LEASE RENT AND HAD ACCORDINGLY SHOWN H IGHER PROFIT. (V) THE SAID AMOUNT WAS OFFERED FOR TAXATION AND WA S CONSIDERED IN DETERMINING THE TOTAL INCOME FOR THE RESPECTIVE AYS WHICH SHOULD BE REDUCED IN ASCERTAINING TRUE UNDISCLOSED INCOME FOR THE BLOCK PERIOD. (VI) THUS, THERE WAS NO UNDERSTATEMENT OF INCOME IN RESPECT OF THIS ACTIVITY AND COMPANY WAS NOT IN POSSESSION OF ANY UNDISCLOSED INCOME. (VII) AO INSTEAD OF REDUCING THE PROFIT, ADDED AN A MOUNT OF ` .20,71,06,500 TO THE INCOME THAT WAS NOT AS A REGUL AR INCOME BUT AS THE UNDISCLOSED INCOME UNDER CHAPTER XIV-B. THE ACTION OF AO HAS RESULTED IN DOUBLE TAXATION OF A NON EXISTING INCOME WHEREIN AO IN ASSESSMENT FOR AY 199 7-98 HAD DISALLOWED CLAIM OF LEASE RENTALS ON NON EXISTI NG ASSETS OF ` .14,73,48,444. 13.11 WITHOUT PREJUDICE THE UNDISCLOSED INCOME IF ANY REPRESENTED THE INCOME OF A NEW INDUSTRIAL UNDERTAK ING THAT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA AND ALSO PERTAINED TO EXPORT BUSINESS AND WAS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80HHC AND SUCH DEDUCTIONS SHOULD HAVE BEEN GRANTED IN COMPUTING UNDISCLOSED INCOME. THE AMENDMENT IN SECT ION 158BB COVERING EXPENSE/ DEDUCTION OR ALLOWANCE, IF AT ALL , APPLIES ONLY WHEN THE CLAIMS ARE FOUND TO BE FALSE AS A RESULT O F THE SEARCH AND EVIDENCE FOUND IN SEARCH. THE DEFINITION OF UNDISCL OSED INCOME PREVAILING ON DATE OF SEARCH AND ALSO ON THE DATE O F BLOCK ASSESSMENT ORDER DID NOT INCLUDE IN ITS SCOPE AND A MBIT THE CLAIMS MADE FOR EXPENSES/DEDUCTIONS AND ALLOWANCES. THERE WAS NO SEIZED ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 23 OF 84 MATERIAL IN POSSESSION OF AO WHICH HE COULD HAVE SE EN TO DISALLOW THE LEASE PAID TO IDBI & LKP. MOREOVER HE HAS ALSO NOT GIVEN ANY REASON WHATSOEVER FOR REJECTION AND HOW HE HAS DETE RMINED THE QUANTUM OF DISALLOWANCE. NO SEIZED MATERIALS WERE F OUND AND AO NEVER PRODUCED ANY PROOFS TO SHOW THE GENUINENESS O F PAYMENTS FOR PURCHASE OF ASSETS. THE ACCOUNTING ENTRIES WERE PAS SED IN THE BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE OF BU SINESS BEFORE THE DATE OF SEARCH. THE CLAIMS WERE MADE IN THE RET URN OF INCOME FOR THE RESPECTIVE YEARS FILED BEFORE THE DATE OF S EARCH WHICH WERE VERIFIED AND AUDITED BY THE AUDITORS AND WERE DULY DISCLOSED IN THE FINANCIAL STATEMENTS. AO MAINLY TREATED THE CLAIMS AS REPRESENTING UNDISCLOSED INCOME OF THE BLOCK PERIOD BECAUSE (A) THE EXPLANATIONS WAS NOT FURNISHED (B) DETAILS WERE NOT AVAILABLE AN D (C) CLAIM IS SUPPOSED TO BE BOGUS. 13.12 AO HAD SIMPLY DISALLOWED THE CLAIM FOR AY 1 993-94 BECAUSE THE IDBI WAS DENIED THE CLAIM OF DEPRECIATION. FOR SUBSEQUENT YEARS AO DOES NOT HAVE ANY REASON WHATSOEVER TO SUP PORT HIS ACTION BUT FOR ABOVE THREE POINTS: - THAT LEAST RENT WAS ACCOUNTED AND NO SEIZED MATERIA L WAS FOUND. - TO CLAIM FOR SET OFF FOR CAPITALIZED REVENUE EXPEND ITURE ` .40,95,50,804 - TO CLAIM ENHANCED CHAPTER VI-A DEDUCTION OF ` .56,29,399 IN AY 1994-95. - TO CLAIM SET OFF OF B/FD UNABSORBED DEPRECIATION ` .74,74,520 IN AY 1994-95. 13.13 AS FAR AS THE FACTS FOR AY 1993-94 ARE CON CERNED, AMOUNT DEBITED TO PROFIT & LOSS A/C IS ` .20,67,973. AMOUNT DISALLOWED BY AO IS ` .35,06,500 WHICH IS IN EXCESS OF THE DEBIT IN PROFI T & LOSS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 24 OF 84 A/C. EXPENSES OF REVENUE NATURE NOT CLAIMED IN REGU LAR RETURN OF ` .2,21,13,738 NOT SET OFF AGAINST UNDISCLOSED INCOME . 13.14 FOR AY 1994-95 THE AMOUNT DEBITED TO PROFI T & LOSS A/C IS ` .1,69,66,037, WHEREAS THE AMOUNT DISALLOWED BY AO I S ` .96,00,000. EXPENSES OF REVENUE NATURE NOT CLAIMED IN REGULAR RETURN OF ` .78,17,197 NOT SET OFF AGAINST UNDISCLOSED INCOME. 13.15 IN AY 1995-96 THE AMOUNT DEBITED TO PROFIT & LOSS A/C ` .1,85,65,280 WHEREAS THE AMOUNT DISALLOWED BY AO IS ` .1,29,00,000. EXPENSES OF REVENUE NATURE NOT CLAIME D IN REGULAR RETURN OF ` .1,47,66,748 NOT SET OF AGAINST THE UNDISCLOSED IN COME. IN AY 1996-97, THE AMOUNT DEBITED TO PROFIT & LOSS A/C WAS ` .6,56,11,546 AGAINST WHICH AO DISALLOWED AN AMOUNT OF ` .4,10,00,000. EXPENSES OF REVENUE NATURE NOT CLAIME D IN REGULAR RETURN OF ` .9,98,73,498 NOT SET OFF AGAINST THE UNDISCLOSED IN COME. 13.16 IN AY 1997-98 THE AMOUNT DEBITED TO PROFIT & LOSS A/C WAS ` .17,81,46,180 AGAINST WHICH AO DISALLOWED AN AMOUNT OF ` .14,00,00,000. EXPENSES OF REVENUE NATURE NOT CLAIM ED IN REGULAR RETURN OF ` .23,55,97,722 NOT SET OFF AGAINST UNDISCLOSED INCOM E. 14. GROUND NO.7 OF ASSESSEES APPEAL IS WITH REFERENCE TO ADDITION FOR DEPRECIATION CLAIMED FOR THE AYS 1995- 96 TO 1997-98 FOR ` .2,08,00,000, ` .38,52,00,000 AND ` .59,51,00,000 RESPECTIVELY. 14.1 IN THE ASSESSMENT AO HELD THAT EVIDENCES WE RE FOUND IN THE COURSE OF THE SEARCH THAT ASSESSEE HAD CLAIMED DEPR ECIATION AS WELL AS LEASE RENTALS ON NON EXISTING ASSETS. 14.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT DE PRECIATION WAS DULY ACCOUNTED IN THE BOOKS OF ACCOUNT AND IT WAS R EGULARLY ALLOWED AS DEDUCTION IN THE REGULAR ASSESSMENTS. UNDISCLOS ED INCOME EXCLUDES AN INCOME WHICH IS REPRESENTED BY AN ENTRY IN THE BOOKS OF ACCOUNT. THE CLAIM OF THE COMPANY WAS MADE IN DE TERMINING THE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 25 OF 84 REGULAR INCOME OR PROFIT FOR THE YEAR AND WAS CONSI DERED BY AO IN REGULAR ASSESSMENT UPTO AY 1997-98. ONCE IT IS HELD THAT THE INCOME PERTAINING TO EXCESSIVE CLAIM WAS THE SUBJEC T MATTER OF REGULAR ASSESSMENT AS IS DULY CONFIRMED BY THE ASSE SSMENT ORDER OF AY 1997-98 THE ADDITIONS IN RESPECT OF EACH OF THE AYS SHOULD BE EXCLUDED FROM THE PURVIEW OF BLOCK ASSESSMENT. IN T HIS REGARD THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NR PAPER & BOARD LTD 101 TAXMAN 525 HELD THAT THE PROCEEDINGS IN BLOCK A SSESSMENT ARE TOTALLY DIFFERENT FROM THE PROCEEDINGS IN REGULAR A SSESSMENT AND THAT A SUBJECT MATTER OF ONE ASSESSMENT COULD NOT B E THE SUBJECT MATTER OF BLOCK ASSESSMENT. MOREOVER, NO EVIDENCE I S FOUND IN SEARCH TO ESTABLISH THAT DEPRECIATION WAS BOGUS. 14.3 AO HAS NOT IDENTIFIED THE RELEVANT LOOSE PA PERS RELYING ON WHICH HE HAS ADDED THE CLAIM OF DEPRECIATION AS UND ISCLOSED INCOME. WITHOUT PREJUDICE THE CLAIM OF DEPRECIATION WAS PART OF THE OVERALL SCHEME FOR RAISING FUNDS FOR BUSINESS A ND THE NET UNDISCLOSED INCOME, IF ANY, RELATING TO THE ENTIRE SCHEME SHOULD ONLY BE TAXED. WITHOUT PREJUDICE THE LEARNED AO COU LD NOT HAVE TREATED THE ENTIRE AMOUNT REPRESENTING THE CLAIM OF DEPRECIATION AS UNDISCLOSED INCOME BUT SHOULD HAVE REDUCED SUCH AMOUNT BY THE AMOUNT AGAINST PAPER REVENUE/INCOME SHOWN ON SA LE OF ELECTRICITY AND GENUINE REVENUE EXPENDITURE WHICH O THERWISE WAS ALLOWABLE IN COMPUTING TOTAL INCOME. THE EXCESSIVE ELEMENT OF CLAIM COULD HAVE BEEN DETERMINED ONLY AFTER REDUCIN G THE DEPRECIATION BY AMOUNT OF PAPER PROFIT. DEPRECIATIO N IS JUST ONE OF THE LINKS OF ENTIRE TRANSACTION OF RAISING THE NECE SSARY FINANCE FOR THE PURPOSES OF BUSINESS AND THE SAME SHOULD NOT HA VE BEEN ISOLATED BY AO FOR TREATING IT AS INCOME. STATEMENT ON OATH RECORDED DURING THE COURSE OF SEARCH WHICH EXPLAIN THE TRANSACTIONS NOWHERE CONFIRMED THAT THE AMOUNT OF D EPRECIATION ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 26 OF 84 REPRESENTED SUPPRESSION OF PROFIT/INCOME AND REPRES ENTED BY ANY INCOME. 14.4. IT WAS HELD BY THE LEARNED CIT (A) THAT AMENDMENTS BOTH IN SECTION 158B(B) DEFINING UNDISCLOSED INCOME AND IN SECTION 158BB(1) RELATING TO COMPUTATION OF UNDISCLOSED INC OME BY FINANCE ACT 2002 BUT RETROSPECTIVELY W.E.F.01.07.19 95. THE SAID AMENDMENTS SPECIFICALLY INCLUDE THEREIN INCOME BASE D ON ENTRIES IN BOOKS OF ACCOUNT OR OTHER DOCUMENTS WHICH REPRES ENT FALSE CLAIM OF ANY EXPENSE, DEDUCTION OR ALLOWANCE. 14.5 IN THE LIGHT OF THE AMENDMENT MADE BY FINANC E ACT, 2002 THE POSSIBILITY OF HAVING TWO OPINION ON THE MATTER IS CLEARLY ELIMINATED AND AO IS AT LIBERTY TO EXAMINE IN A BLOCK ASSESSME NT PROCEEDINGS AN ENTRY RECORDED IN REGULAR BOOKS OF ACCOUNT, IF O N THAT ACCOUNT SOME INCRIMINATING DOCUMENT IS FOUND DURING THE COU RSE OF PROCEEDINGS. THERE IS NO MERIT IN THE CLAIM OF ASSE SSEE THAT THE EXPENSES WHICH WERE CAPITALIZED IN THE ACCOUNTS BE ALLOWED AS THE REVENUE DEDUCTION IN THE COMPUTATION OF UNDISCLOSED INCOME. IN THE COMPUTATION OF THE UNDISCLOSED INCOME ONLY AN EXPEN DITURE CAN BE HELD AS ADMISSIBLE FOR DEDUCTION THAT HAS BEEN INCU RRED FOR EARNING AN UNACCOUNTED RECEIPT THAT WAS NOTICED IN THE COUR SE OF SEARCH PROCEEDINGS ONLY. 14.6 IT WAS SUBMITTED BEFORE US THAT DEPRECIATION WAS DULY ACCOUNTED IN THE BOOKS OF ACCOUNT AND IT WAS REGULA RLY ALLOWED AS DEDUCTION IN THE REGULAR ASSESSMENTS. NO EVIDENCE IS FOUND IN SEARCH TO ESTABLISH THAT DEPRECIATION WAS BOGUS. A. O HAS NOT IDENTIFIED THE RELEVANT LOOSE PAPERS RELYING ON WHI CH HE HAS ADDED THE CLAIM OF DEPRECIATION AS UNDISCLOSED INCOME. NO CLAIM FOR DEPRECIATION TO THE EXTENT OF RS.24,03,95,048(ASST YEAR 1996-1997) & RS.52,21,20,023 (A Y 1997-98) AGGREGATING TO RS.76,25,15,071 WAS MADE IN THE REGULAR RETURN FOR ASST YEAR 1996-9 7 & 1997-98 AS NO ADDITION COULD HAVE BEEN MADE FOR ALLOWANCE THAT WAS NOT ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 27 OF 84 CLAIMED NOR ALLOWED. DEPRECIATION FOR AY 1996-97 AN D 1997-98 WAS NEVER CLAIMED AND COULD NEVER BE PART OF UNDISCLOSE D INCOME. PAGE 151,152 AND PG 124,125 OF PB 2 CONFIRMS THAT CLAIM WAS NOT MADE WHILE FILING RETURN 0F INCOME. THEREFORE THESE CLAIMS WERE NEVER ALLOWED BY AO IN REGULAR ASSESSMENT LEAVING NO POSS IBILITY OF WITHDRAWAL OF SUCH CLAIMS IN BLOCK PERIOD. ONLY DEP RECIATION AMOUNT ADJUSTED ALLOWED & ABSORBED IN THE REGULAR RETURN COULD BE A SUBJECT MATT OF DISALLOWANCE AND THE DEPRECIATION NOT CLAIMED COULD NEVER BE A SUBJECT MATTER OF ADDITION PROVIDE D EVIDENCE WAS FOUND DURING SEARCH AND THAT DEPRECIAT ION DULY ACCOUNTED IN THE BOOKS OF ACCOUNT OF THE RESPECTIVE YEARS AND ASSESSED AS SUCH BY THE INCOME TAX DEPARTMENT COULD BE CONSIDERED ONLY IN THE REGULAR ASSESSMENTS AND COUL D NEVER HAVE BEEN CONSIDERED IN BLOCK ASSESSMENT PROCEEDINGS WHI LST COMPUTING UNDISCLOSED INCOME. ALSO NO SPECIFIC REAS ON WAS GIVEN BY A.O. HE CONCLUDED ONLY ON THE GENERAL OBSERVATIO NS MADE BY HIM. 14.7 A.O HAS ALSO NOT GIVEN ANY REASON WHATSOEVER FOR HIS AC TION OF ADDITION AS UNDISCLOSED INCOME & HOW HE HAS DETERMINED THE QUANTUM OF ADDITION. UNDISCLOSED INCOME DEFINED BY SEC. 158B( B) EXCLUDES ANY INCOME THAT IS ACCOUNTED IN BOOKS OF ACCOUNTS. SEC. 158BB(I) MANDATES THAT AN INCOME CAN BE TREATED AS UNDISCLOSED INCOME ONLY ON THE BASIS OF EVIDENCE FO UND AS A RESULT OF SEARCH. SEC. 158BB(III) REMOVES ALL DOUBTS ABOUT THE FACT THAT ANY CLAIM DISCLOSED IN THE RETURN OF INCOME FILED B EFORE DATE OF SEARCH CANNOT BE TREATED AS UNDISCLOSED INCOME. THE AMENDMENT IN SEC. 158BB COVERING EXPENSE/DEDUCTION OR ALLOWAN CE APPLIES ONLY WHEN THE CLAIMS ARE FOUND TO BE FALSE AS A RES ULT OF THE SEARCH AND EVIDENCE FOUND IN SEARCH. IN THIS CASE NO EVIDE NCE IS FOUND TO DISPROVE THE CLAIM. DEFINITION OF UNDISCLOSED INCOM E PREVAILING ON DATE OF SEARCH AND ALSO ON THE DATE OF BLOCK ASSESS MENT DID NOT ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 28 OF 84 INCLUDE IN ITS SCOPE AND AMBIT THE CLAIMS MADE FOR EXPENSES/DEDUCTIONS AND ALLOWANCES. THE AMENDMENT TO THE FINANCE ACT, 2002 DID NOT DISPENSE WITH THE NEED FOR THE SEIZED MATERIAL AND FINDINGS THEREON. THE AMENDMENT DOES NOT CURE THE DEFICIENCY ARISING ON ACCOUNT OF WANT OF SEIZED MAT ERIAL WHICH IS A SINE QUA NON FOR THE ADDITION IN CHAPTER XIV B. THE CIT(A) HIMSEL F CONFIRMED THIS POSITION IN LAW. THE AMENDMENT IN A NY CASE WAS INAPPLICABLE TO THE CASE OF A SEARCH WHICH TOOK PLA CE ON 18/12/1999 AND IMPORTANTLY TO A BLOCK ASSESSMENT ORDER PASSED ON 29-12-1999. WITHOUT PREJUDICE THE CLAIM OF DEPRECIATION WAS PAR T OF THE OVERALL SCHEME FOR RAISING FUNDS FOR BUSINES S & THE NET UNDISCLOSED INCOME, IF ANY, RELATING TO THE ENTIRE SCHEME SHOULD ONLY BE TAXED. 14.8 WITHOUT PREJUDICE THE LD. A.O. COULD NOT HAVE TREATED THE ENTIRE AMOUNT REPRESENTING THE CLAIM OF DEPRECIATION AS UNDISCLOSED INCOME BUT SHOULD HAVE REDUCED SUCH AMO UNT BY THE AMOUNT AGAINST PAPE R REVENUE/INCOME SHOWN ON SALE OF ELECTRICITY AND GENUINE REVENUE EXPENDITURE WHICH OTHERWISE WAS ALLOWABLE IN COMPUTING TOTAL INCOME. THE EXCESSIVE ELEMENT OF CL AIM COULD HAVE BEEN DETERMINED ONLY AFTER REDUCING THE DEPRECIATIO N, THE AMOUNT OF PAPER PROFIT. DEPRECIATION IS JUST ONE OF THE LI NKS OF ENTIRE TRANSACTION OF RAISING THE NECESSARY FINANCE FOR TH E PURPOSES OF BUSINESS AND THE SAME SHOULD NOT HAVE BEEN ISOLATED BY THE A.O. FOR TREATING IT AS INCOME. , STATEMENT ON OATH RECORDED DURING THE COURSE OF SEARCH WHICH EXPLAIN THE TRANSACTIONS NOW HERE CONFIRMED THAT THE AMOUNT OF DEPRECIATION REPRESENTED SUPPRES SION OF PROFIT/INCOME AND REPRESENTED ANY INCOME. UNDISCLOS ED INCOME EXCLUDES AN INCOME WHICH IS REPRESENTED BY AN ENTRY IN THE BOOKS OF ACCOUNT. THE CLAIM OF THE COMPANY WAS MADE IN DE TERMINING THE REGULAR INCOME OR PROFIT FOR THE YEAR AND WAS CONSI DERED BY AO IN REGULAR ASSESSMENT UPTO AY 1997-98. ONCE IT IS HELD THAT THE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 29 OF 84 INCOME PERTAINING TO EXCESSIVE CLAIM WAS THE SUBJEC T MATTER OF REGULAR ASSESSMENT AS IS DULY CONFIRMED BY THE ASSE SSMENT ORDER OF AY 1997-98, THE ADDITION IN RESPECT OF EACH OF THE AYS SHOULD BE EXCLUDED FROM THE PURVIEW OF BLOCK ASSESSMENT. 14.9 HON'BLE GUJARAT HIGH COURT IN THE CASE OF NR PAPER & BOARD LTD 101 TAXMAN 525 HELD THAT THE PROCEEDINGS IN BLOCK ASSESSMENT ARE TOTALLY DIFFERENT FROM THE PROCEEDIN GS IN REGULAR ASSESSMENT AND THAT A SUBJECT MATTER OF ONE ASSESSM ENT COULD NOT BE THE SUBJECT MATTER OF BLOCK ASSESSMENT. THE REAL UNDISCLOSED INCOME COULD ONLY BE BROUGHT TO TAX AND THE REVENUE EXPENDITURE ALLOWABLE UNDER NORMAL COURSE WRONGLY CAPITALIZED S HOULD BE REDUCED FROM THE DEPRECIATION AMOUNT SOUGHT TO BE T AXED. 14.10 WITHOUT PREJUDICE THE UNDISCLOSED INCOME IF ANY REPRESENTED THE INCOME OF A NEW INDUSTRIAL UNDERTAK ING THAT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA AND ALSO PERTAINED TO EXPORT BUSINESS AND WAS ELIGIBLE FOR DEDUCTION UNDE R SECTION 80HHC AND SUCH DEDUCTIONS SHOULD HAVE BEEN GRANTED IN COMPUTING UNDISCLOSED INCOME. FURTHER ASSESSEE WAS ELIGIBLE FOR SET OFF OF UNABSORBED DEPRECATION AGAINST THE UNDIS CLOSED INCOME AND SET OFF OF UNABSORBED BUSINESS LOSS AGAINST THE UNDISCLOSED INCOME FOR THE BLOCK PERIOD. 14.11 THE FACTS RELATING TO AY 1995-96, THE NET RES ULT OF UNACCOUNTED TRANSACTIONS/UNDISCLOSED INCOME WAS ` (-)10,69,12,434 WHICH WHEN ADJUSTED AGAINST THE GTI BEFORE DEPRECIATION OF ` .9,01,54,495 CAME TO ` .(-)1,67,57,939. ACCORDINGLY THERE WAS NO SCOPE FOR ADJUSTING GENUINE DEPRECIATI ON OF ` .4,73,68,372 ( ` .7,28,92,386 ` .2,55,23,934) WHICH REMAINED UNABSORBED AND AVAILABLE FOR SET OFF AGAINST INCOME OF SUBSEQUENT YEAR. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 30 OF 84 14.12 FOR AY 1996-97 THE NET RESULT OF UNACCOUNTED TRANSACTIONS/UNDISCLOSED INCOME WAS ` (-)17,74,26,078 WHICH WHEN ADJUSTED AGAINST THE GTI BEFORE DEPRECIATION OF ` .12,59,93,545 CAME TO ` .(-)5,14,32,533. ACCORDINGLY THERE WAS NO SCOPE FOR ADJUSTING GENUINE DEPRECIATION OF ` .3,59,75,504 ( ` .38,01,71,841 ` .34,41,96,337) WHICH REMAINED UNABSORBED AND AVAILA BLE FOR SET OFF AGAINST INCOME OF SUBSEQUENT YEAR. ASSESSEE COM PANY HAS NOT CLAIMED ANY DEPRECIATION TO THE EXTENT OF ` .24,03,95,048. DEPRECIATION OF ` .3,59,75,054 OUT OF ` .38,01,71,841 WAS FOR GENUINE EXISTING ASSETS WHILE AO HAS ADDED ` 38,52,00,000. 14.13 WITH REGARD TO AY 1997-98, THE NET RESULT OF UNACCOUNTED TRANSACTIONS/UNDISCLOSED INCOME AS MENTIONED ABOVE WAS ` .(-)27,29,56,598 WHICH WHEN ADJUSTED AGAINST THE GT I BEFORE DEPRECIATION OF ` .12,26,21,983 CAME TO ` .(-)15,03,34,615. ACCORDINGLY THERE WAS NO SCOPE FOR ADJUSTING GENUIN E DEPRECIATION OF ` .4,55,81,321( ` .64,47,42,006 ` .59,91,60,685) WHICH REMAINED UNABSORBED AND AVAILABLE FOR SET OFF AGAINST INCOME OF SUBSEQUENT YEAR. COMPANY HAS NOT CLAIMED ANY DEPRECIATION TO T HE EXTENT OF ` .52,21,20,023, WHEREAS DEPRECIATION OF ` .4,55,81,321 OUT OF ` .64,47,42,006 WAS FOR GENUINE EXISTING ASSETS WHILE AO HAS ADDED ` .59,51,00,000. 15. GROUND NO.8 IS WITH REGARD TO CLAIM FOR ALLOWANCE OF REVENUE EXPENDITURE TREATED AS CAPITAL EXPENDITURE FOR AYS 1993-94 ( ` .2,16,97,964, 1995-96 ` .84,81,795, 1996-97 ` .8,44,89,635, 1997- 98 ` .18,52,31,429 AND FOR AY 1998-99 ` 10,96,49,955. 15.1. BEFORE THE CIT (A) IT WAS SUBMITTED THAT CL AIM WAS MADE IN RETURN FOR THE BLOCK PERIOD AND GENUINE EXPENDITURE OF REVENUE NATURE WERE INCURRED ON FINANCE CHARGES, PROFESSION AL FEES AND LEASE MANAGEMENT. TO ENSURE HIGHER BOOK PROFITS, GE NUINE REVENUE EXPENSES WERE CAPITALIZED WHICH HAD AN EFFECT OF IN FLATING THE PROFIT. IT WAS NECESSARY TO SHOW HIGHER BOOK PROFITS SINCE THE COMPANY ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 31 OF 84 WANTED TO RAISE FUNDS BY ADR AND GDR ISSUE. THE AMO UNT OF UNDISCLOSED INCOME ON ACCOUNT OF WRONG CLAIM OF LEA SE RENT HAS TO BE REDUCED BY GENUINE REVENUE EXPENSES INCURRED MAI NLY FOR RAISING FUNDS THROUGH LEASE ROUTE WHICH EXPENSES ERE NOT CL AIMED IN REGULAR COURSE. IT IS ONLY THE EXCESS NET CLAIM OF LEASE RENT THAT COULD BE TREATED AS UNDISCLOSED INCOME UNDER CHAPTE R XII-B. IT IS ESTABLISHED PRINCIPLE OF LAW THAT THE AMOUNT THAT C OULD BE TAXED AS INCOME IS THE ONE WHICH IS DETERMINED AFTER DEDUCTI ON OF ALL THAT EXPENDITURE THAT WAS INCURRED FOR EARNING THE INCOM E. 15.2 IT WAS HELD BY THE CIT (A) THAT THE EXPENSE S CAPITALIZED WERE RELATABLE TO THE ACQUISITION OF ASSETS AND THEIR IN STALLATIONS. THE ASSETS IN RESPECT OF WHICH EXPENSES WERE CLAIMED TO HAVE BEEN CAPITALIZED WERE FOUND NON EXISTENT IN THE SEARCH A CTION, THUS IT IS NOT KNOWN HOW THOSE EXPENSES CAN BE HELD AS INCURRE D FOR OTHER PURPOSES. 15.3. BEFORE US IT WAS SUBMITTED THAT: (I) CLAIM WAS MADE IN RETURN FOR BLOCK PERIOD. PAGE 77 OF PB I (II) GENUINE EXPENDITURE OF REVENUE NATURE WERE INCURRED ON FINANCE CHARGES, PROFESSIONAL FEES AND LEASE MANAGEMENT FEES. PAGE 347 OF PB 3A (III) DETAILS OF EXPENSES WERE FURNISHED. PAGE 347 OF PB 3A (IV) CIT(A) ERRED IN SAYING THAT THE EXPENSES CAPITALIZE D WERE RELATABLE TO THE ACQUISITION OF ASSETS AND THE IR INSTALLATIONS SINCE THE ASSET WAS NOT IN EXISTENCE. (V) THE CIT(A) HIMSELF CONFIRMS THAT THE ASSETS WERE FOUND TO BE NON- EXISTENT THUS CONTRADICTING HIS POSITION. (VI) THE COMPANY SHOWED HIGHER BOOK PROFITS BY NOT CLAIMING GENUINE REVENUE EXPENDITURE SINCE IT WANTED TO RAISE FUNDS BY ADR AND GDR ISSUE. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 32 OF 84 (VII) THIS EXPENSES WERE NEVER CLAIMED AND HENCE NOT ALLOWED AS DEDUCTION IN REGULAR ASSESSMENT (VIII) THE EXPENSES WERE REVENUE IN NATURE (IX) PROOFS OF EXPENDITURE WERE AVAILABLE AND DETAILS WE RE FURNISHED (X) THIS EXPENDITURE WERE INCURRED FOR EARNING UNDISCLOSED INCOME (XI) IT HAD THE EFFECT OF REDUCING UNDISCLOSED INCOME (XII) ONLY REAL (NET) UNDISCLOSED INCOME CAN BE TAXED. IT IS ONLY THE EXCESS NET CLAIM OF LEASE RENT THAT COULD BE TREATED AS UNDISCLOSED INCOME UNDER CHAPTER XII-B. (XIII) SPECIFIC CLAIM WAS MADE WHILE FILING RETURN FOR BL OCK PERIOD (XIV) IT IS ESTABLISHED PRINCIPLE OF LAW THAT THE AMOUNT THAT COULD BE TAXED AS INCOME IS THE ONE WHICH IS DETERMINED AFTER DEDUCTION OF ALL THAT EXPENDITURE THAT WAS INCURRED FOR EARNING THE INCOME. (XV) SHRI HOMI R PATEL MD OF THE COMPANY IN HIS STATEMEN T ON OATH DATED 27.12.1997 AND IN ANSWER TO Q.12 HAS SPECIFICALLY EXPLAINED THE GENUINENESS OF THESE EXPENSES WHICH WERE IN THE NATURE OF REVENUE EXPENS ES BUT WERE CAPITALISED IN THE BOOKS OF ACCOUNTS & THEREFORE PRESSED FOR ALLOWANCE OF THE SAME IN COMPUTING UNDISCLOSED INCOME. 16. GROUND NO.9 IS WITH REGARD TO FAILURE TO EXCLUDE BOGUS RECEIPTS SHOWN AS INCOME AND OFFERED FOR TAX IN REG ULAR RETURN OF INCOME FOR AY 195-96 ( ` .10,49,78,450, 1996-97 ( ` .1,27,51,970), 1997-98 ( ` .6,81,95,452), 1998-99 ` .38,08,009. 16.1 IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE CLAIM WAS MADE IN RETURN FOR BLOCK PERIOD. TO ENSURE HIGHER BOOK P ROFITS, COMPANY GENERATED PAPER PROFITS ON FICTITIOUS SALE OF THE P OWER OR ENERGY FROM PAPER WIND MILLS (NON-GENUINE ASSETS) AND SHOW ED BOGUS INCOME ON SALE OF ELECTRICITY. COMPANY SHOWED HIGHE R BOOK PROFITS BY SHOWING BOGUS INCOME ON SALE OF ELECTRICITY, PRO FIT ON SALE AND LEASE BACK SINCE IT WANTED TO RAISE FUNDS BY ADR AN D GDR ISSUE. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 33 OF 84 THE EXCESSIVE ELEMENT OF CLAIM FOR LEASE RENT THAT COULD BE TREATED AS AN UNDISCLOSED INCOME COULD HAVE BEEN DETERMINED ONLY AFTER REDUCING THE AMOUNT OF PAPER PROFIT SHOWN ON SALE O F ELECTRICITY FROM NON-GENUINE ASSETS AND THE LEASE RENT BY THE A MOUNT OF INTEREST, GENUINE REVENUE EXPENDITURE CAPITALIZED. THE COMPANY HAD IN FACT INFLATED ITS PROFIT BY AN AGGREGATE AMO UNT OF ` .20,45,12,686 BY SHOWING BOGUS INCOME ON SALE OF EL ECTRICITY, PROFIT ON SALE AND LEASE BACK. IT IS ONLY THE EXCES S NET CLAIM OF LEASE RENT THAT COULD BE TREATED AS UNDISCLOSED INCOME UN DER CHAPTER XII-B. 16.2 THE LEARNED CIT (A) HELD THAT ASSESSEE HAD SHOWN THE SALE OF ELECTRICITY TO ONE OF THE CONCERNS OF THE SAME MANA GEMENT M/S. AVON ELECTRONICS PVT. LTD. THE AR IN THIS RESPECT H AS NOT BEEN ABLE TO PROVIDE ANY EVIDENCE THAT THE CLAIM FOR DEDUCTIO N OF THE EXPENDITURE INCURRED BY THE SAID EXPENDITURE INCURR ED BY THE SAID CONCERN HAS BEEN WITHDRAWN CONSEQUENT TO THE SEARCH ACTION. 16.3 IT WAS ALSO HELD BY THE CIT (A) THAT THERE IS ALSO NO FINDING IN THE SEARCH PROCEEDINGS IN REGARD TO THE SALE OF ELE CTRICITY BEING NON GENUINE. EVEN THE ACCOUNTS OF THE COMPANY DOES NOT INDICATE ANY SALE. AGAIN FOR THE CLAIM OF EXCLUSION OF INCOME OF THE INTEREST ON HIRE PURCHASE TRANSACTION, IT IS TO BE SAID THAT TH ERE IS NO FINDING IN THE SEARCH PROCEEDINGS THAT ANY ITEM HAS BEEN TAKEN BY ASSESSEE IN TERMS OF THE SAID ARRANGEMENT. 16.4 BEFORE US ASSESSEE SUBMITTED THE FOLLOWING: A) CLAIM THAT INCOME WAS NON EXISTENT WAS MADE IN RETURN FOR BLOCK PERIOD. PAGE 77 B) TO ENSURE HIGHER BOOK PROFITS, COMPANY GENERATED PAPER PROFITS ON FICTITIOUS SALE OF THE POWER OR EN ERGY FROM PAPER WIND MILLS (NON-GENUINE ASSETS) AND SHOWED BO GUS INCOME ON SALE OF ELECTRICITY. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 34 OF 84 C) THE COMPANY SHOWED HIGHER BOOK PROFITS BY SHOWIN G BOGUS INCOME ON SALE OF ELECTRICITY, PROFIT ON SALE AND LEASE BACK SINCE IT WANTED TO RAISE FUNDS BY ADR AND GDR ISSUE D) THE EXCESSIVE ELEMENT OF CLAIM FOR LEASE RENT TH AT COULD BE TREATED AS AN UNDISCLOSED INCOME COULD HAVE BEEN DETERMINED ONLY AFTER REDUCING THE AMOUNT OF PAPER PROFIT SHOWN ON SALE OF ELECTRICITY FROM NON-GENUINE ASSET S & THE LEASE RENT BY THE AMOUNT OF INTEREST, GENUINE REVEN UE EXPENDITURE CAPITALIZED. E) DETAILS OF NON-INCOME RECEIPTS AS PER PG 510-511 OF PB 3B) F) NON-EXISTENT INCOME ON SALE OF ELECTRICITY WERE RECORDED IN BOOKS OF ACCOUNTS AND NO EXPENSES CORRESPONDING TO THE SAID PAPER INCOME WERE DEBITED SINCE THE SOLE OBJEC TIVE OF THE COMPANY WAS TO ENSURE HIGHER PROFITS. G) POWER GENERATING ASSETS NOT IN EXISTENCE AT ALL H) BLOCK ASSESSMENT CONFIRMED THAT ASSESSEE HAD NO INFRASTRUCTURE OR PLANT AND MACHINERY TO PRODUCEELE CTRICITY I)THE CIT(A) HIMSELF HAS REDUCED THE INCOME FOR THE BLOCK PERIOD BY EXCLUDING THE PAPER PROFIT CREDITED TO P/ L A/C. REPRESENTING SALE OF NON - EXISTING ASSETS NAMELY W IND TURBINE GENERATOR. NOW WHEN THE WTG THEMSELVES ARE ADMITTED TO BE NOT IN EXISTENCE THE QUESTION OF SAI D WTG GENERATING POWER & ITS SALES & SUCH SALES MAKING PROFIT COULD NEVER ARISE & THE PROFIT CREDITED TO PROFIT & LOSS A/C HAD TO BE EXCLUDED BY REDUCING THE UNDISCLOSED INCO ME AS WAS DONE FOR PROFIT ON SALE OF WTG(PLEASE SEE PG 45 OF CIT(A) ORDER PG 18) PG 310 OF PB 3A) J) INCOME REPRESENTING PAPER TRANSACTION K) SALE PROCEEDS WAS NEVER REALISED L) THE LEARNED CIT(A) WAS WRONG IN HIS REASONS BECA USE M/S. AVON ELECTRONICS P. LTD HAD NEVER ACCOUNTED, NEVER ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 35 OF 84 PARTICIPATED, NEVER ISSUED ANY BILL & NEVER CLAIMED ANY EXPENSES FOR PURCHASE OF ELECTRICITY FROM ASSESSEE COMPANY NOR PAID FOR IT. M) DISALLOWANCE OF LEASE RENT AND DEPRECIATION IS A PART OF THE SAME TRANSACTION OF GENERATING PAPER INCOME ON SALE OF ELECTRICITY. N) THE TRANSACTION IN TOTALITY SHOULD BE DISREGARDE D AND NOT SELECTIVELY. O) BLOCK ASSESSMENT SHOULD BRING TO TAX THE REAL (N ET) UNDISCLOSED INCOME. P) CREDITS AND DEBITS WERE INTRICATELY LINKED AND R EPRESENTED ONE TRANSACTION AND ONE SCHEME Q) THE SOLE OBJECTIVE WAS TO SHOW HIGHER REVENUE AN D OFFSET TILE SAME BY CLAIM FOR DEDUCTIONS BASED ON PAPERWOR K. 17. GROUND NO.10 IS ON THE DISALLOWANCE OF CLAIM FOR INTEREST ON FUNDS BORROWED FROM FINANCIAL INSTITUTIONS AND BANK S FOR AY 1996- 97 ( ` .3,96,00,000) AND FOR AY 1997-98 ( ` .8,32,00,000). 17.1 AO HELD THAT THE INTEREST WAS PAID ON FUNDS BORROWED FOR ACQUIRING NON EXISTING ASSETS CAN NOT BE ALLOWED. 17.2 BEFORE THE CIT (A) IT WAS SUBMITTED THAT AO HAD NOT DEFINED OR SPECIFIED THE PARTIES FROM WHOM THESE FUNDS WERE BORROWED NOR HAD HE SPECIFIED THE QUANTUM OR THE AMOUNT OF THE L OANS. HE HAD ALSO NOT IDENTIFIED WHEN THESE LOANS WERE TAKEN, WH AT WAS THE RATE OF INTEREST AND WHETHER THE LOANS TAKEN WERE OTHERW ISE USED FOR BUSINESS PURPOSES OR NOT. HE HAD NOT BOTHERED TO FU RNISH ANY REASONING OR METHODS EXPLAINING HOW THE RESPECTIVE AMOUNTS WERE DETERMINED BY HIM FOR THE PURPOSES OF DISALLOWANCES . ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 36 OF 84 17.3 IT WAS SUBMITTED THAT INTEREST WAS DULY ACCO UNTED IN THE REGULAR BOOKS OF ACCOUNT AND COULD NOT HAVE BEEN TR EATED AS UNDISCLOSED INCOME UNDER SECTION 158B(B) OF THE BLO CK PERIOD NOR UNDER SECTION 158BB. AS LONG AS THE FUNDS ARE NOT P ROVED TO HAVE BEEN UTILIZED FOR THE NON BUSINESS PURPOSES, THE IN TEREST ON SAID FUNDS CANNOT BE DISALLOWED. 17.4 IT WAS ALSO SUBMITTED BEFORE THE CIT (A) THA T NO MATERIAL WHATSOEVER NATURE WAS FOUND DURING THE COURSE OF SE ARCH TO SUPPORT SUCH A DISALLOWANCE NOR WAS ANY STATEMENT R ECORDED ON OATH. IN THE CIRCUMSTANCES, THE DISALLOWANCES EVEN IF IT WAS TRUE AND CORRECT COULD HAVE TAKEN PLACE ONLY IN COMPUTIN G TOTAL INCOME IN REGULAR ASSESSMENT AND IN NO CIRCUMSTANCES COULD HAVE BEEN TREATED AS RESPECTING PART OF THE UNDISCLOSED INCOM E AND FOR THAT MATTER OF THE BLOCK ASSESSMENT. INTEREST THAT HAS B EEN CLAIMED FOR THE RESPECTIVE YEARS IS IN RESPECT OF FUNDS BORROWE D FOR BUSINESS PURPOSES. MOST OF THE FUNDS WERE BORROWED IN EARLIE R YEARS AND THE INTEREST THEREON WAS CONSISTENTLY ALLOWED. IT IS RE ALLY NOT KNOWN WHY AO HAD PICKED UP AY 1996-97 AND 1997-98 ONLY FO R DISALLOWANCE. INTEREST FOR AY 1997-98 WAS DISALLOWE D IN REGULAR ASSESSMENT BY AO BY INVOKING PROVISIONS OF SECTION 43B FOR NON PAYMENT BEFORE DUE DATE. THIS VERY SAME INTEREST ON CE AGAIN APPEARS TO HAVE BEEN TREATED AS UNDISCLOSED INCOME IN BLOCK ASSESSMENT THUS LEADING TO DOUBLE TAXATION. 17.5. THE LEARNED CIT (A) HELD THAT BASED ON THE REMAND REPORT OF AO ASSESSEE HAS PRIMARILY UTILIZED THE FUND FOR MAK ING PAYMENTS TO ITS ASSOCIATED ENTERPRISES. BASED ON THE REMAND REP ORT, THE LEARNED CIT (A) WAS OF THE OPINION THAT THE SAID BORROWED F UNDS ARE NOT USED FOR THE PURPOSES OF BUSINESS. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 37 OF 84 17.6 BEFORE US ASSESSEE SUBMITTED AS UNDER: (A) ADDITION BASED ON NO LOOSE PAPERS AT ALL EVEN T HOUGH NO ADMISSION WAS EVER MADE. (B) INTEREST WAS A) PAID BY ACCOUNT PAYEE CHEQUE AN D IT WAS DULY ACCOUNTED IN THE BOOKS OF ACCOUNTS. (C) IT WAS REGULARLY ALLOWED AS DEDUCTION IN THE RE GULAR ASSESSMENT (D) NO EVIDENCE IS FOUND IN SEARCH TO ESTABLISH TH AT INTEREST PAID WAS BOGUS. (E) A.O HAS NOT IDENTIFIED THE RELEVANT LOOSE PAPE RS RELYING ON WHICH HE HAS ADDED THE INTEREST AS UNDISCLOSED INCOME (F) ASSESSEE HAD NOWHERE STATED THAT THE INTEREST REPRESENTED BOGUS CLAIM OF EXPENSES (G) A.O. HAD NOT DEFINED OR SPECIFIED THE PARTIES FROM WHOM THESE FUNDS WERE BORROWED NOR HAD HE SPECIFIED THE QUANTUM OR OTHER AMOUNT OF THE LOANS; HE HAD AL SO NOT IDENTIFIED WHEN THESE LOANS. WERE TAKEN, FOR WH AT PERIOD THEY WERE TAKEN-WHAT WAS THE RATE OF INTERES T AND WHETHER THE LOANS TAKEN WERE OTHERWISE USED FOR BUSINESS PURPOSES OR NOT. HE HAD HOT BOTHERED TO FURNISH ANY REASONING OR METHODS EXPLAINING HOW THE RESPECTIVE AMOUNTS WERE DETERMINED BY HIM FOR THE PURPOSES OF DISALLOWANCE (H) THERE WAS NO REASON TO BELIEVE THAT THE ENTIRE INTEREST WAS BOGUS WITHOUT ANY EVIDENCE OR INQUIRY LEADING T O SUCH FINDINGS . (I) THE FUNDS WERE NOT BORROWED FOR ACQUIRING NON E XISTING ASSETS AND ACQUIRED & USED ONLY FOR BUSINESS PURPOS E. (J) INTEREST WAS DULY ACCOUNTED IN THE REGULAR BOO KS OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 38 OF 84 ACCOUNT AND COULD NOT HAVE BEEN TREATED AS UNDISCLOSED INCOME UNDER SECTION 158B9B) OF THE BLOCK PERIOD NOR UNDER SECTION 158BB. (K) EVEN REMAND REPORT OF A.O WAS INDICATIVE & TENTATIVE - NOT CONCLUSIVE. FACTS OF BORROWINGS ARC NOT DISPUTED AND ARE CONFIRMED BY THE LEARNED CIT (A). FACT OF PAYMENT OF INTEREST IS NOT DISPUTED AND IS CONFIRMED BY CIT (A). (L) NO INDEPENDENT FINDINGS OF CIT(A) FOR DIVERSION OF FUNDS. (M) AS LONG AS THE FUNDS ARC NOT PROVED TO HAVE BEE N UTILISED FOR THE NON-BUSINESS PURPOSES, THE INTERES T ON SAID FUNDS CANNOT BE DISALLOWED (N) MOST OF THE FUNDS WERE BORROWED IN EARLIER YEAR S AND THE INTEREST THEREON WAS CONSISTENTLY ALLOWED. (O) NO LOOSE PAPERS FOUND TO SHOW THE DIVERSION OF FUNDS TO ASSOCIATES ENTERPRISES (P) PAYMENT TO ASSOCIATED ENTERPRISE WAS IN ANY CAS E IN THE COURSE OF BUSINESS & COULD HAVE BEEN WITH OR EVEN WITHOUT INTEREST (Q) WITHOUT PREJUDICE PAYMENT TO ASSOCIATED ENTERPRISES EVEN IF MADE COULD NOT BE DISALLOWED IN BLOCK ASSESSMENT (R) NO MATERIAL WHATSOEVER NATURE WAS FOUND DURING THE COURSE OF SEARCH TO SUPPORT SUCH A DISALLOWANCE NOR WAS ANY STATEMENT RECORDED ON OATH. IN THE CIRCUMSTANCES, THE DISALLOWANCES EVEN IF IT WAS TRU E AND CORRECT COULD HAVE TAKEN PLACE ONLY IN COMPUTIN G TOTAL INCOME IN REGULAR ASSESSMENT AND IN NO CIRCUMSTANCES COULD HAVE BEEN TREATED AS RESPECTING PART OF THE UNDISCLOSED INCOME AND FOR THAT MATTER OF THE BLOCK ASSESSMENT. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 39 OF 84 (S) IT IS REALLY NOT KNOWN WHY THE LD. A.O. HAD PIC KED UP ASST. YEARS 1996-97 AND 1997-98 ONLY FOR DISALLOWAN CE (T) INTEREST THAT HAS BEEN CLAIMED FOR THE RESPECTI VE YEARS IS IN RESPECT OF FUNDS BORROWED FOR BUSINESS PURPOSES. (U) NO STATEMENT WAS MADE NOR AO HAS RELIED UPON AN STATEMENT BY COMPANY FOR DISALLOWANCE. (V) INTEREST FOR A.Y 1997-98 WAS DISALLOWED IN REGU LAR ASSESSMENT BY THE A.O BY INVOKING PROVISIONS OF SEC. 439 FOR NON-PAYMENT BEFORE DUE DATE. THIS VERY SAME INTEREST ONCE AGAIN APPEARS TO HAVE BEEN TREAT ED UNDISCLOSED INCOME IN BLOCK ASSESSMENT THUS LEADING TO DOUBLE TAXATION. 17.7. THE LEARNED DR SUBMITTED HIS CONTENTIONS IN DETAIL ON WHICH ALL THE FACTUAL ISSUES AND ALSO ON LEGAL PROP OSITIONS. 18. WE HAVE CONSIDERED THE ISSUES AND EXAMINED THE RECORD AND RIVAL CONTENTIONS. ALL THE ABOVE GROUNDS ARE INTERL INKED IN A SENSE THAT OF JURISDICTION TO MAKE ADDITIONS/DEDUCTIONS I N THE BLOCK ASSESSMENT. AS FAR AS THE LEGAL PRINCIPLES ARE CONC ERNED IT IS ALREADY AN ESTABLISHED LAW THAT MATTERS WHICH ARE R ECORDED IN THE BOOKS OF ACCOUNT AND ON WHICH NO INCRIMINATING MATE RIAL WAS FOUND CANNOT BE CONSIDERED IN THE BLOCK ASSESSMENT. IT WAS ALSO AN ESTABLISHED LAW THAT PROCEEDINGS UNDERTAKEN UNDE R SECTION 133A AND INFORMATION ALREADY GATHERED BEFORE THE SE ARCH CANNOT BE A BASIS FOR COMPLETING THE BLOCK ASSESSMENT UNLE SS THERE IS INCRIMINATING MATERIAL. THE SAME CANNOT BE CONSIDER ED IN THE BLOCK ASSESSMENT. 18.2 RELEVANT CASE LAW ON THIS ISSUE ARE AS UND ER . (A) THE CASE OF E.K. LINGAMURTHY V. SETTLEMENT COMM ISSIONER (IT&WT) (2009) 178 TAXMAN 116 (SC)2009, IT WAS HELD : SECTION 158BB, INTER ALIA, STATES THAT UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 40 OF 84 FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORD ANCE WITH THE PROVISIONS OF CHAPTER IV. TOTAL INCOME IS DEFINED IN SECTION 2( 45 ) TO MEAN THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECT ION 5, COMPUTED IN THE MANNER LAID DOWN IN THE ACT. IN OTHER WORDS, CH APTER XIV DOES NOT RULE OUT CHAPTER IV IN THE MATTER OF COMPUTATIO N OF UNDISCLOSED INCOME UNDER CHAPTER XIV-B. IT MAY BE MENTIONED THA T ORDINARILY, IN THE CASE OF REGULAR ASSESSMENT, THE UNIT OF AN ASSE SSMENT IS ONE YEAR CONSISTING OF TWELVE MONTHS, WHEREAS IN THE CASE OF BLOCK ASSESSMENT THE UNIT OF ASSESSMENT CONSISTS OF TEN P REVIOUS YEARS AND THE PERIOD UP TO THE DATE OF THE SEARCH. SECTIO N 158BB PROVIDES FOR AGGREGATION OF INCOME/LOSS OF EACH PREVIOUS YEA R COMPRISED IN THE BLOCK PERIOD. THE BLOCK PERIOD ASSESSMENT UNDER CHA PTER XIV-B IS IN ADDITION TO REGULAR ASSESSMENT. ANALYSING SECTION 158BB(4), READ WITH THE EXPLANATION ( A ) THERETO, ONE FINDS THAT ONLY BROUGHT FORWARD LOSSES OF THE PAST YEARS UNDER CHAPTER VI AND UNABSORBED DEPRECIATION UNDER SECTION 32(2) ARE TO BE EXCLUDED WHILE AGGREGATING THE TOTAL INCO ME OR LOSS OF EACH PREVIOUS YEARS IN THE BLOCK PERIOD BUT SET-OFF OF T HE LOSS SUFFERED IN ANY OF THE PREVIOUS YEARS IN THE BLOCK PERIOD AGAIN ST THE INCOME ASSESSED IN OTHER PREVIOUS YEARS IN THE BLOCK PERIO D IS NOT PROHIBITED. THE SETTLEMENT COMMISSION HAD ERRED IN DISALLOWING THE APPLICATION OF THE ASSESSEE FOR SET-OFF OF INTER SE LOSSES AND DEPRECIATION ACCRUING IN ANY OF THE PREVIOUS YEARS IN THE BLOCK PERIOD AG AINST THE INCOME RETURNED/ASSESSED IN ANY OTHER PREVIOUS YEAR IN THE BLOCK PERIOD. FOR THE AFORESTATED REASONS, THE IMPUGNED JUDGMENT OF THE HIGH COURT AS WELL AS THE DECISION OF THE SETTLEMENT COM MISSION WAS TO BE SET ASIDE; THE MATTER WAS TO BE REMITTED TO THE SET TLEMENT COMMISSION FOR FRESH COMPUTATION OF THE UNDISCLOSED INCOME UNDER SECTION 158BB FOR THE BLOCK PERIOD-IN-QUESTION. ACC ORDINGLY, THE APPEALS FILED BY THE ASSESSEE WERE TO BE ALLOWED. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 41 OF 84 (B) IN THE CASE OF CIT VS. SMT. C. SABIRA, 338 IT R 226 (KER)/[2011] 237 CTR 477 (KER) SEARCH AND SEIZURE BLOCK ASSESSMENT CLAIM OF DE PRECIATION SECTION 158BH MAKES ALL THE OTHER PROVISIONS APPLIC ABLE TO THE ASSESSMENT UNDER CHAPTER XIV-B UNLESS IT IS OTHERWI SE PROVIDED FOR SECTION 158BB PROVIDES THAT THE UNDISCLOSED INCOM E SHALL BE THE AGGREGATE OF THE TOTAL INCOME OF THE PREVIOUS YEARS WITHIN THE BLOCK PERIOD WHICH IS TO BE COMPUTE DIN ACCORDANCE WITH T HE PROVISIONS OF THE ACT. THEREFORE, SUBJECT TO THE RESTRICTIONS IMP OSED IN THE EXPLANATION TO SECTION 158BB THERE IS NO EMBARGO AG AINST ASSESSEE CLAIMING THE BENEFIT OF THE DEPRECIATION AS PER THE PROVISIONS OF THE ACT AND THE RULES NOTWITHSTANDING THE FACT THAT THE AMOUNT OF DEPRECIATION CLAIMED IS HIGHER THAN THE AMOUNT CLAI MED IN THE REGULAR RETURN. CONCLUSION: SECTION 158BH MAKES ALL THE OTHER PROVISIONS APPLICABLE TO THE ASSESSMENT UNDER CHAPTER XIV-B UN LESS IT IS OTHERWISE PROVIDED FOR, THEREFORE, EVEN IN A BLOCK ASSESSMENT, AO MUST ALLOW THE CLAIM OF ASSESSEE FOR THE DEPRECIATI ON WHICH IS LEGALLY PERMITTED UNDER THE PROVISIONS OF THE ACT. (C) IN THE CASE OF ASSISTANT COMMISSIONER OF INCOM E-TAX , C.C. II VS. AMRITSAR PROCESSORS (P.) LTD. 2006] 154 TAXMAN 33 ( ASR)(MAG.) (10-11-2005] IT WAS DECIDED THAT: IN VIEW OF THE DECISION OF THE TRIBUNAL, MUMBAI BENCH IN THE CASE OF B.D.A. LTD. V. ASSTT. CIT [1998] 65 ITD 501 , IN WHICH IT WAS HELD THAT LOSSES COMPUTED IN BLOCK ASSESSMENT FOR LATER YEARS HAD TO BE SET OFF AGAINST THE UNDISCLOSED INCOME COMPUTED IN RESPECT OF OTHER PRE VIOUS YEAR FALLING WITHIN THE BLOCK PERIOD, THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. (D) THE CASE OF CIT VS. KRISHNA KUMAR R. PARMAR S LP (CASE) NO.25394 OF 2009 DATED 1 ST OCTOBER, 2009, THE HON'BLE GUJARAT HIGH COURT DISMISSED THE DEPARTMENTS APPEALS HOLDING TH AT THE MATERIAL ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 42 OF 84 OR EVIDENCE WHICH WAS UNRELATED TO SEARCH COULD NOT FORM THE BASIS OF THE COMPUTATION OF UNDISCLOSED INCOME ESPECIALLY WHEN THE IMPUGNED INCOME HAD BEEN DISCLOSED BY ASSESSEE IN R EGULAR ASSESSMENT AND THE SAME HAD BEEN ASSESSED (TAX APPE AL NOS.1195 AND 1196 OF 2008 DATED 19 TH JANUARY, 2009). (E) IN THE CASE OF B.D.A. LTD. VS. ASSISTANT COMMISSIONER OF INCOME- TAX, [1998] 65 ITD 501 (MUM)/[1998] 61 TTJ 197 (MUM )- THERE IS NO PROHIBITION AGAINST THE LOSSES OF SOME OF THE PREVIOUS YEARS COMPRISED IN THE BLOCK PERIOD BEING SET OFF A GAINST THE INCOME OF THE OTHER YEARS COMPRISED IN THE BLOCK PERIOD. E VEN ON FIRST PRINCIPLES, IT IS NOT POSSIBLE TO COUNTENANCE THE A RGUMENT OF THE REVENUE THAT THE RESULT OF THE COMPUTATION OF A PAR TICULAR PERIOD COMPRISED IN THE BLOCK PERIOD HAS TO BE IGNORED, IF SUCH COMPUTATION SHOWS A LOSS. SUCH AN ARGUMENT, IF ADVANCED IN RESP ECT OF AN ASSESSMENT OF AN ASSESSEE WHOSE CASE IS NOT COVERED BY CHAPTER XIV-B, CANNOT BE ACCEPTED, AS IT IS A WELL ACCEPTED AND RECOGNIZED POSITION THAT THE COMPUTATION MUST BE MADE WITH REF ERENCE TO THE WHOLE PERIOD OF TWELVE MONTHS COMPRISED IN THE PREV IOUS YEAR AND THE TAX IS PAYABLE ONLY IF SUCH COMPUTATION SHOWS A POSITIVE INCOME. LOSSES INCURRED DURING THE PREVIOUS YEAR CANNOT BE IGNORED AND THIS PRINCIPLE IS IN-BUILT IN THE CONCEPT OF AN ASSESSME NT UNDER THE ACT. THE PRINCIPLE IS THAT FOR THE PURPOSE OF CHARGING I NCOME-TAX THE VARIOUS SOURCES OF INCOME OF AN ASSESSEE HAVE GOT T O BE AGGREGATED AND THE RESULTS OF EACH SOURCE FOR THE ENTIRE PREVI OUS YEAR HAVE TO BE RECKONED AND MERELY BECAUSE THE FIRST FEW MONTHS OF THE PREVIOUS YEAR SHOW A POSITIVE INCOME AND THE REST OF THE PER IOD SHOWS A NEGATIVE INCOME, THE RESULT OF THE LATER PERIOD CAN NOT BE IGNORED. THE INCOME-TAX LAW DOES NOT PERMIT THIS. WHAT IS TRUE O F THE ASSESSMENT OF AN ASSESSEE WHO HAS NOT BEEN BROUGHT UNDER SECTI ON 132 AND IN WHOSE CASE CHAPTER XIV-B DOES NOT APPLY IS ALSO TRU E IN RESPECT OF AN ASSESSEE WHO HAS BEEN SEARCHED AND WHOSE ASSESSMENT IS TO BE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 43 OF 84 MADE UNDER CHAPTER XIV-B. THERE IS NO DIFFERENCE BE TWEEN THE TWO TYPES OF CASES SO FAR AS THE APPLICATION OF THE PRI NCIPLE IS CONCERNED. IN THE FORMER, THE PREVIOUS YEAR IS THE PERIOD WITH REFERENCE TO WHICH THE INCOME IS TO BE ASCERTAINED, AS DEFINED IN SECT ION 3; IN THE LATTER, IT IS THE BLOCK PERIOD WITH REFERENCE TO WHICH TH E INCOME IS TO BE ASCERTAINED, AND THE BLOCK PERIOD CONSISTS OF PREVI OUS YEARS RELEVANT TO TEN ASSESSMENT YEARS PRECEDING THE PREVIOUS YEAR IN WHICH THE SEARCH TOOK PLACE AND INCLUDES THE FURTHER PERIOD U P TO THE DATE OF COMMENCEMENT OF THE SEARCH. BUT THE UNDISCLOSED INC OME IS TO BE COMPUTED WITH REFERENCE TO THE ENTIRE BLOCK PERIOD AND IT IS THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PERIOD THA T IS CHARGED TO INCOME-TAX UNDER SUB-SECTION (2) OF SECTION 158BA. IT FOLLOWS THAT THE RESULTS OF THE DIFFERENT VARIOUS YEARS COMPRISED IN THE BLOCK PERIOD WILL HAVE TO BE AGGREGATED IN ORDER TO FIND OUT THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PERIOD. IN OTHER WORD S, THE BLOCK PERIOD IS TO BE TREATED AS THE PREVIOUS YEAR AND SO IT FOL LOWS THAT THE LOSSES SUFFERED DURING CERTAIN PARTS OR PERIODS OF THE BLO CK PERIOD HAVE TO BE SET OFF OR ADJUSTED AGAINST THE INCOME EARNED DURIN G THE REMAINING PARTS OR PERIODS THEREOF. READING SUB-SECTION (1) OF SECTION 158BB IN CONJUNC TION WITH CLAUSE ( A ) OF THE EXPLANATION , IT IS CLEAR THAT WHILE AGGREGATING THE RESULTS OF THE DIFFERENT PREVIOUS YEARS FALLING WITHIN THE BLO CK PERIOD, THE LOSSES HAVE ALSO TO BE TAKEN INTO ACCOUNT. THE EXPLANATION DOES NOT SAY THAT IF THE COMPUTATION RESULTS IN A LOSS IT SHOULD BE IGNORED. ON THE CONTRARY IT PROCEEDS TO SAY THAT THE LOSS FOR THAT PREVIOUS YEAR SHALL BE CONSIDERED FOR AGGREGATION. ONLY THE BROUGHT FOR WARD LOSSES UNDER CHAPTER VI AND THE UNABSORBED DEPRECIATION UNDER SE CTION 32(2) CANNOT BE ADJUSTED AGAINST THE INCOME OF A PREVIOUS YEAR WHILE RESORTING TO AGGREGATION. THUS, READING CLAUSE ( A ) OF THE EXPLANATION TO SUB-SECTION (1) IN HARMONY WITH THE SAID SUB-SEC TION AND SUB- SECTION (4), THE PROHIBITION AGAINST SETTING OFF TH E LOSSES AGAINST THE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 44 OF 84 UNDISCLOSED INCOME OF THE BLOCK PERIOD APPLIES ONLY TO LOSSES UNDER CHAPTER VI (SECTION 72) AND UNABSORBED DEPRECIATION DETERMINED AND PERMITTED TO BE CARRIED FORWARD IN REGULAR ASSESSME NTS AND DOES NOT APPLY TO ADJUSTMENT OF THE LOSS COMPUTED IN RESPECT OF A PARTICULAR PREVIOUS YEAR FALLING WITHIN THE BLOCK PERIOD AGAIN ST THE INCOME COMPUTED IN RESPECT OF THE OTHER YEARS FALLING WITH IN THE BLOCK PERIOD. SUCH ADJUSTMENT OR SET-OFF, IN FACT, CANNOT BE CONS IDERED TO FALL UNDER THE CATEGORY OF BROUGHT FORWARD LOSSES UNDER CHAPT ER VI AT ALL. IN THIS RESPECT, BOTH CLAUSE ( A ) OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 158BB AND SUB-SECTION (4) THEREOF CONVEY TH E SAME IDEA. SECTION 158BB(1)( C ) DID NOT ADMIT OF THE ARGUMENT ADVANCED BY THE DEPARTMENT TO THE EFFECT THAT THE RETURNS FOR THE A SSESSMENT YEARS 1989-90, 1993-94,1994-95 AND 1995-96, FOR WHICH LOS SES HAD BEEN COMPUTED IN THE BLOCK ASSESSMENT, NOT HAVING BEEN F ILED TILL THE DATE OF SEARCH, THE LOSSES COMPUTED FOR THOSE YEARS COUL D NOT BE SET OFF AGAINST THE INCOME COMPUTED IN RESPECT OF THE OTHER YEARS FALLING WITHIN THE BLOCK PERIOD. FOR THE ABOVE REASONS, THE ASSESSEES CLAIM WAS ACC EPTED AND THE LOSSES FOR THE ASSESSMENT YEARS 1989-90, 1993-94, 1 994-95 AND 1995-96 AS COMPUTED IN THE BLOCK ASSESSMENT, WERE D IRECTED TO BE SET OFF AGAINST THE UNDISCLOSED INCOME COMPUTED IN RESPECT OF THE OTHER PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIO D. 18.3 THUS AS CAN BE SEEN FROM THE ABOVE, THERE IS MERIT IN ASSESSEES CONTENTIONS THAT ISSUES WHICH WERE CRYST ALIZED BY INQUIRIES MADE UNDER SECTION 133A CANNOT BE CONSIDE RED AS UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT ON LEGAL PRINCIPLES. FURTHER, PROVISIONS OF SECTION 158C FOR SET OFF OF LOSSES IS IN RELATION TO THOSE LOSSES WHICH WERE INCURRED IN REG ULAR COURSE OUT OF DULY ACCOUNTED TRANSACTIONS. SUCH AN EMBARGO DOE S NOT APPLY TO THE LOSSES FOR THE BLOCK PERIOD RELATING TO UNAC COUNTED TRANSACTIONS. WITHOUT SUCH SET OFF THE INCOME THAT WOULD BE TAXED ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 45 OF 84 UNDER CHAPTER XIV-B WOULD NOT REPRESENT TRUE UNDISC LOSED INCOME OF THE BLOCK PERIOD. ITAT MUMBAI BENCH IN THE CASE OF BDA INDUSTRIES LTD 64 ITD 501 HAS HELD THAT THE UNACCOU NTED LOSSES HAVE TO BE SET OFF AGAINST THE UNACCOUNTED INCOME O F THE BLOCK PERIOD. THE PRINCIPLE IS THAT FOR THE PURPOSE OF CH ARGING INCOME-TAX THE VARIOUS SOURCES OF INCOME OF AN ASSESSEE HAVE G OT TO BE AGGREGATED AND THE RESULTS OF EACH SOURCE FOR THE E NTIRE PREVIOUS YEAR HAVE TO BE RECKONED AND MERELY BECAUSE THE FIR ST FEW MONTHS OF THE PREVIOUS YEAR SHOW A POSITIVE INCOME AND THE REST OF THE PERIOD SHOWS A NEGATIVE INCOME, THE RESULT OF THE L ATER PERIOD CANNOT BE IGNORED. THE INCOME-TAX LAW DOES NOT PERM IT THIS. WHAT IS TRUE OF THE ASSESSMENT OF AN ASSESSEE WHO HAS NO T BEEN BROUGHT UNDER SECTION 132 AND IN WHOSE CASE CHAPTER XIV-B D OES NOT APPLY IS ALSO TRUE IN RESPECT OF AN ASSESSEE WHO HA S BEEN SEARCHED AND WHOSE ASSESSMENT IS TO BE MADE UNDER CHAPTER XI V-B. THERE IS NO DIFFERENCE BETWEEN THE TWO TYPES OF CASES SO FAR AS THE APPLICATION OF THE PRINCIPLE IS CONCERNED. IN THE F ORMER, THE PREVIOUS YEAR IS THE PERIOD WITH REFERENCE TO WHICH THE INCOME IS TO BE ASCERTAINED, AS DEFINED IN SECTION 3; IN THE LAT TER, IT IS THE BLOCK PERIOD WITH REFERENCE TO WHICH THE INCOME IS TO BE ASCERTAINED, AND THE BLOCK PERIOD CONSISTS OF PREVIOUS YEARS REL EVANT TO TEN ASSESSMENT YEARS PRECEDING THE PREVIOUS YEAR IN WHI CH THE SEARCH TOOK PLACE AND INCLUDES THE FURTHER PERIOD UP TO TH E DATE OF COMMENCEMENT OF THE SEARCH. BUT THE UNDISCLOSED INC OME IS TO BE COMPUTED WITH REFERENCE TO THE ENTIRE BLOCK PERIOD AND IT IS THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PERI OD THAT IS CHARGED TO INCOME-TAX UNDER SUB-SECTION (2) OF SECT ION 158BA. IT FOLLOWS THAT THE RESULTS OF THE DIFFERENT VARIOUS Y EARS COMPRISED IN THE BLOCK PERIOD WILL HAVE TO BE AGGREGATED IN ORDE R TO FIND OUT THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PER IOD. IN OTHER WORDS, THE BLOCK PERIOD IS TO BE TREATED AS THE PRE VIOUS YEAR AND SO IT FOLLOWS THAT THE LOSSES SUFFERED DURING CERTAIN PARTS OR PERIODS OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 46 OF 84 THE BLOCK PERIOD HAVE TO BE SET OFF OR ADJUSTED AGA INST THE INCOME EARNED DURING THE REMAINING PARTS OR PERIODS THEREO F. THUS ON LEGAL PRINCIPLES THE CONTENTIONS OF ASSESSEE ARE VA LID. 18.4 APART FROM THE LEGAL PRINCIPLES STATED ABOV E THE FACTS ALSO INDICATE THE ABOVE CONTENTIONS ARE GENUINE. AS SEEN FROM THE ORDER ASSESSEES CLAIM OF PURCHASE OF ASSETS, SALE AND LE ASE BACK TRANSACTIONS WERE UNDER INQUIRY IN THE ASSESSMENT P ROCEEDINGS AND AO CONDUCTED SURVEY PROCEEDINGS AND ALSO MADE F URTHER INQUIRIES WITH VARIOUS PURCHASERS, BANKS ETC. THIS GETS SUPPORT FROM THE VDIS DECLARATIONS PREPARED AND BEING FILED BY ASSESSEE. AS A PART OF PAPER BOOK THE REVENUE HAS FILED COPY OF THE ASSESSMENT ORDER ALONG WITH THE OFFICE NOTE OF AO, WHICH MAKES AN INTEREST READING WHICH IS AS UNDER: OFFICE NOTE SEARCH UNDER SECTION 132 IN THIS GROUP WAS CARRIED OUT ON 18.12.1997 AND THE CASES WERE INITIALLY CENTRALI ZED WITH THE DCIT CENTRAL CIRCLE-33. AFTER THE SEARCH S HRI HOMI PATEL, CHAIRMAN & MANAGING DIRECTOR LEFT THE COUNTRY AND HAS NOT RETURNED SINCE THEN AS THERE AR E SEVERAL NON BAILABLE WARRANTS AGAINST HIM IN CONNEC TION WITH CASES UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT. SHRI B.S. DOCTOR, ANOTHER DIRECTOR IS FACING 78 SUCH CASES FILED AT SEVERAL PLACES. ALL O THER GROUP COMPANIES INCLUDING REPL SYNERGY POWER SYSTEMS LTD GOT WOUNDED UP VIDE MUMBAI HIGH COURTS ORDER AND THEIR PREMISES WERE SEALED BY THE OFFICIA L LIQUIDATOR. ON 21.04.1998 THE MAIN COMPANY I.E REPL ENGG. LTD MADE APPLICATION TO THE B.I.F.R. WHICH AW AITS ADMISSION. FOR ADMINISTRATIVE CONVENIENCE, THE CASES WERE THEREAFTER TRANSFERRED TO THIS CIRCLE VIDE ORDER UN DER SECTION 127 DATED 08.09.98 PASSED BY THE CIT (C)-II I. AS PER THE APPRAISAL REPORT (PARA 3 OF THE DDS FORWARD ING LETTER DATED 21.03.1998) THE SEARCH ACTION HAS RESU LTED INTO DISCOVERY OF DOCUMENTS SUGGESTING EVASION TO T HE TUNE OF ` .200.00 CRORES ON ACCOUNT OF CLAIM OF DEPRECIATION AND LEASE RENTALS ON NON EXISTING ASSE TS. (THIS INCLUDES ESTIMATED DEPRECIATION AND LEASE REN TALS TILL THE DATE OF SEARCH WHICH ASSESSEE WAS EXPECTED TO CLAIM). THE ONLY JOB LEFT FOR AO IS TO FIND OUT THE ASSETS REPRESENTING THE CONCEALED INCOME AS DESIRED BY THE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 47 OF 84 ADIT IN HIS CONCLUDING REMARKS ON PAGE 104 OF THE APPRAISAL REPORT. IDEALLY THIS SHOULD HAVE BEEN THE OTHER WAY ROUND. WHETHER ANY ASSET IS EXISTING OR NOT CAN BE ASCERTAINED SIMPLY BY MAKING SPOT INQUIRIES UNDER SECTION 133A. IN FACT THE CLAIM OF DEPRECIATION ON NON EXISTING ASSETS SOLD TO IDBI AND LEASED BACK TO ASS ESSEE WAS CONCLUSIVELY PROVED AS BOGUS MUCH EARLIER. THIS IS EVIDENT FROM THE SEIZED PAPERS 86 AND 87 OF ANNEXUR E A- 2 DATED 20.02.98 WHICH IS A PHOTOCOPY OF LETTER DAT ED 30.03.97 WRITTEN BY IDBI TO REPL. IT IS MENTIONED T HEREIN THAT VIDE ORDER UNDER SECTION 143(3) DATED 26.03.96 AND 27.03.97 RESPECTIVELY FOR AY 1993-94 AND 1994-95 PASSED IN THEIR CASE, THE CLAIM OF DEPRECIATION ON NON EXISTING ASSETS PURCHASED FROM REPL WAS REJECTED BY AO AND ASKING REPL TO PAY THE DEMAND AS A RESULT OF THE ABOVE ASSESSMENT ORDERS. ACCORDINGLY FURTHER FOLLOW UP IN THE CASE OF REPL WAS ALL THAT WAS NECESSARY T O DISALLOW CONSEQUENT LEASE RENTALS AND DEPRECIATION ON ASSETS OF SIMILAR NATURE. 3. BE THAT AS IT MAY, IT IS CLAIMED IN THE APPRAISA L REPORT THAT AS A RESULT OF SEARCH, EVIDENCE PROVING NON EX ISTENT NATURE OF ASSETS HAVE BEEN FOUND. IT WOULD APPEAR F ROM THE SEIZED PAPERS THAT ASSESSEE WAS HIMSELF ABOUT T O SURRENDER THE CLAIM OF LEASE RENTALS AND DEPRECIATI ON IN THE WAKE OF ORDER UNDER SECTION 143(3) DATED 26.03. 96 AND 27.03.97 PASSED IN THE CASE OF THE IDBI BY FILI NG DECLARATIONS UNDER THE VDIS. UNFILLED VDIS DECLARAT IONS HAVE BEEN SEIZED. BECAUSE OF THE ACTION UNDER SECTION 132 ASSESSEE BECAME INELIGIBLE FOR VDIS. HE THEREFO RE COULD NOT PAY MORE THAN ` TWO CRORES WHICH HE OBVIOUSLY INTENDED TO. HOWEVER, IN VIEW OF THE FINDINGS IN TH E CASE OF THE IDBI, OTHER FINANCE COMPANIES WHO HAD ENTERE D INTO SIMILAR TRANSACTIONS LATER ON FILED DECLARATIO NS UNDER VDIS AS MENTIONED ON PAGE 98 OF THE APPRAISAL REPOR T AND PAID THE TAX. THIS WAY OBLIQUELY THE OBJECTIVE OF THE SEARCH CAN BE SAID TO HAVE BEEN ACHIEVED. 4. THE APPRAISAL REPORT AND THE SEIZED MATERIAL WER E EXTENSIVELY DISCUSSED WITH THE ADDL. CIT. IT OCCURS THAT WHAT ASSESSEE DID WAS ESSENTIALLY A HAWALA RACKET EARNING SOME COMMISSION AND IN THAT PROCESS ENABLIN G HIM TO SHOW HUGE TURNOVER IN THE COMPANYS ACCOUNT TO SECURE MORE FINANCE FROM FINANCIAL INSTITUTIONS AS IT WAS ALREADY HEAVILY INDEBTED. A MAJOR PART OF THE SALE PROCEEDS OF WIND TURBINE GENERATORS WAS IMMEDIATELY RETURNED TO THE CONCERNED FINANCE COMPANIES BY WAY OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 48 OF 84 ADVANCE LEASE RENTALS. THE FINANCE COMPANIES CLAIME D 100% DEPRECIATION ON NON EXISTING ASSETS PURCHASED FROM REPL AND THE LEASE RENTALS RECEIVED WAS SHOWN AS INCOME. THE REPL ON HIS PART, CLAIMED DEPRECIATION FOR OTHER WTGS ON OWN ACCOUNT TO BOOK HUGE PROFIT IN COMPANYS BOOKS. SINCE THE IDEA WAS TO CLAIM TAX BE NEFIT AND TO SHOW HUGE BOOK PROFIT AT THE SAME TIME, ALL SUCH PAPER TRANSACTIONS OF SALES, PURCHASE AND LEASE REN TALS WERE NECESSARILY TO BE RECOVERED IN THE REGULAR BOO KS OF ACCOUNT AND THIS WAY THERE IS HARDLY ANY UNRECORDED TRANSACTION. MOST PART OF THE APPRAISAL REPORT HOWEVER REPEATS OVER AND AGAIN THE LOOSE PAPERS SHOWING TRANSACTION IN SALE OF WTGS WHICH ASSESSEE ALREADY ADMITTED AS BOGUS THOUGH NOT UNRECORDED. SOME OF TH E REMARKS INDICATING HUGE TAX EVASION (PAGE NO.68 OF AUTHORISED REPRESENTATIVE REFERRING TO SEIZED PAPERS NO.49 TO 58) DEFIES ANY DESCRIPTION CONCERNI NG KNOWLEDGE OF ACCOUNTANCY. 5. AS STATED ABOVE THE ADIT HAS GENEROUSLY REFERRED TO A LARGE NUMBER OF DOCUMENTS SHOWING TRANSACTIONS OF S ALE AND LEASE OF NON EXISTING ASSETS (WTGS) ON ALMOST E ACH PAGE OF THE APPRAISAL REPORT. DISCUSSION ON PAGE NO .116 AND 117 OF THE APPRAISAL REPORT ITSELF MAKES IT CLE AR THAT ONLY A FRACTION OF THE TOTAL AMOUNT EXCEEDING ` .75 CRORES INVOLVED IN THE LEASING WAS IN FACT RECEIVED BY ASS ESSEE. THERE ARE SOME OTHER SEIZED PAPERS REFERRED TO IN T HE APPRAISAL REPORT. ASSESSEE WAS CONFRONTED WITH ALL SUCH PAPERS BUT THERE IS NO COMPLIANCE. UNFORTUNATELY TH E REGULAR BOOKS OF ACCOUNT HAVE NOT BEEN SEIZED. ACCORDINGLY NO DIRECT VERIFICATION IS POSSIBLE. HOW EVER, SUMMONS WERE ISSUED TO THE BANKS AND COPIES OF BANK STATEMENTS WERE OBTAINED TO VERIFY PARTICULARLY ASSESSEES CLAIM THAT THE SEIZED LETTERS INDICATING ARRANGEMENT OF FOREIGN REMITTANCES WERE ALL FABRICA TED MESSAGES TO HOODWINK CREDITORS AND THE BANKS. THIS APPEARS TO BE CORRECT AS THE BANK ACCOUNTS DO NOT CORROBORATE RECEIPT OF REMITTANCE OF HUGE AMOUNT RE FERRED TO THEREIN. THE CONTENTS OF THE SEIZED PAPERS WERE DISCUSSED WITH THE ADDL. CIT FROM TIME TO TIME. SIN CE THE REGULAR BOOKS HAVE NOT BEEN SEIZED AND AS ASSESSEE HAS NOT MADE ANY ATTEMPT TO EXPLAIN ANY OF THE SEIZED P APER BY PRODUCING SUCH BOOKS OF ACCOUNT, THERE IS NO ALTERNATIVE BUT TO DRAW ADVERSE INFERENCE WHEREVER NECESSARY AND TAKING AN OVERALL VIEW ESTIMATED ADDITIONS TO COVER THE SEIZED PAPERS HAVE BEEN MADE . ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 49 OF 84 6. IT IS SEEN FROM THE RECORDS THAT ASSESSEE WAS IN JOINT VENTURE WITH ELF LUBRICANTS, PARIS SINCE F.Y 1994-9 5.THE TOTAL TURNOVER WAS ` .51 CRORES. OTHER JOINT VENTURES STARTED FROM THE SAME YEAR ARE REPL VSZM HUNGARY AND REPL (MALAYSIA) SDN-BHD. REMITTANCES ON SUCH ACCOUNTS FOR VARIOUS EXPORT EARNINGS ARE THOUGH REG ULAR BANKING CHANNELS. SO FAR AS THE OXCAMB IS CONCERNED , IN VIES OF THE EVIDENCES REFERRED TO IN THE ORDER, THE SAME IS HELD AS BENAMI CONCERN OF ASSESSEE. 7. IN THE COURSE OF DISCUSSIONS HELD REGULARLY WITH THE ADDL. CIT REGARDING THE PROGRESS OF INVESTIGATION, IT WAS DECIDED TO SEND PROPOSAL FOR PROVISIONAL ATTACHMENT UNDER SECTION 281B. ACCORDINGLY ALL KNOWN ASSETS OF THE COMPANY HAVE BEEN PROVISIONALLY ATTACHED ON 02.07.9 8. THE PERMISSION EXPIRES ON 31.12.99 AND THE CIT HAS ALREADY BEEN REQUESTED TO EXTEND THE SAME FOR FURTH ER PERIOD UPTO 31.03.2000. (EMPHASIS SUPPLIED). 18.5 THUS, AS CAN BE SEEN FROM THE ABOVE, THERE IS AN ADMISSION BY AO ON RECORD THAT THESE TRANSACTIONS WERE ALREAD Y BEING ASCERTAINED AND INQUIRED IN THE 133A PROCEEDINGS AN D JUST BECAUSE THE SEARCH AND APPRAISAL REPORT, AO HAS CONSIDERED THEM IN THE BLOCK ASSESSMENT PROCEEDINGS. EVEN BEFORE THE SEARC H, PURCHASE OF NON EXISTING ASSETS FROM REPL WAS REJECTED IN THE C ASE OF IDBI ON THE BASIS OF WHICH THE ASSESSMENT IN THAT CASE WAS COMPLETED FOR AY 1996-97. THEREFORE, ASSESSEES CONTENTIONS THAT THESE MATTERS WERE CRYSTALISED MUCH BEFORE THE SEARCH PROCEEDINGS HAS TO BE ACCEPTED. THEREFORE, THE SAME CANNOT BE CONSIDERED IN THE BLOCK ASSESSMENT. 18.6 EVEN IN THE BLOCK ASSESSMENT COMPLETED THER E ARE OTHER CONTENTIONS THAT THE LOSSES TO BE CONSIDERED IN THE BLOCK ASSESSMENT CAN BE CLAIMED AND SET OFF. IN OUR OPINI ON THE LEARNED CIT (A) WRONGLY CONSIDERED THE ISSUE WHILE REJECTIN G ASSESSEES CONTENTIONS. AS CAN BE SEEN FROM THE CASE LAW EXTRA CTED THE LOSSES WHICH WERE DETERMINED AND ELIGIBLE FOR SET OFF IN T HE REGULAR ASSESSMENT CANNOT BE CONSIDERED IN THE BLOCK ASSESS MENT BUT ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 50 OF 84 THERE IS NO RESTRICTION UNDER THE LAW TO SET OFF TH E LOSSES ARRIVED AT THE BLOCK PERIOD ITSELF WHICH HAS NOTHING TO DO WIT H THE QUANTIFIED LOSSES IN REGULAR ASSESSMENTS. THEREFORE, ON THAT I SSUE ALSO ASSESSEES CONTENTIONS ARE VALID. 18.7 OTHER ISSUE TO BE CONSIDERED IS TO GIVE EFF ECT TO THE ENTIRE TRANSACTIONS OF IT IS TO BE CONSIDERED AS BOGUS. IT WAS ASSESSEES CONTENTIONS THAT THE ENTIRE SALE AND LEASE BACK TRA NSACTIONS BEING BOGUS, WHAT IS REQUIRED TO BE ADJUSTED IS THAT THE SALE OF ELECTRICITY SHOWN AS INCOME SHOULD BE EXCLUDED WHILE CONSIDERIN G THE DISALLOWANCE OF DEPRECIATION ON THE NON EXISTING AS SETS AND ALSO LOSSES INCURRED IN THE TRANSACTIONS. FURTHER IT WAS ALSO CONTENTION THAT THE LEASE PAYMENTS BEING TREATED AS BOGUS SHOU LD BE ADJUSTED BY WAY OF INTEREST PAYABLE FOR THE FINANCE OBTAINED . 18.8 EVEN THOUGH THESE ASPECTS WERE AGITATED BY ASSESSEE, THESE WERE NOT CONSIDERED AT THE RIGHT SPIRIT BY AO AND T HE CIT (A). THEREFORE, WE ARE OF THE OPINION THAT THE ORDERS PA SSED BY AO AND THE CIT (A) SUFFERS FROM VARIOUS DEFICIENCIES BOTH ON PRINCIPLES OF THE LAW AS WELL AS ON FACTS. ASSESSEE HAS PLACED LA RGE VOLUMINOUS PAPER BOOKS AND DOCUMENTS AND IT IS NOT POSSIBLE FO R US TO EXAMINE EACH AND EVERY DOCUMENT TO VERIFY WHETHER THE SAME CAN BE CONSIDERED IN THE BLOCK ASSESSMENT OR IN THE REGULA R ASSESSMENT. MORE OVER THE AMOUNTS CLAIMED IN RETURN OF INCOME O F BLOCK REQUIRE RECONCILIATIONS WITH THE AMOUNTS SUBMITTED BEFORE CIT(A) PARTICULARLY ANNEXUERES B-1 TO B-5 PLACED IN PAPER BOOK FROM PAGES 481 TO 509, WHICH INCLUDED AMOUNTS ADMITTED T O BE UNDISCLOSED INCOME IN BLOCK ASSESSMENT. IT IS ON RE CORD THAT SOME OF THE TRANSACTIONS AND DEPRECIATION DISALLOWED WAS ALREADY CONSIDERED BY AO IN THE REGULAR ASSESSMENT EVEN THO UGH SOME OF THE ADDITIONS IN THE REGULAR ASSESSMENT WAS DELETED BY THE CIT (A). WE ARE OF THE OPINION THAT SINCE INQUIRIES WERE CON DUCTED UNDER SECTION 133A MUCH BEFORE THE SEARCH, THE CERTAIN EX TENT OF DEPRECIATION CLAIMED ON NON EXISTING ASSESSMENTS HA VING BEEN ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 51 OF 84 CRYSTALISED, THOSE ARE TO BE CONSIDERED IN THE REGU LAR ASSESSMENT ONLY. SINCE THIS HAS EFFECT ON CARRY FORWARD OF DEP RECIATION AND LOSSES IN THE REGULAR ASSESSMENT, IT IS ALL THE MOR E NECESSARY TO BE MADE IN THE REGULAR ASSESSMENT AS NONE OF THE TRANS ACTIONS ARE OUTSIDE THE BOOKS OF ACCOUNT. AS BOGUS NATURE OF VA RIOUS ENTRIES AND CLAIMS HAVING BEEN CONCLUDED BEFORE THE SEARCH AND ASSESSEE WAS CONTEMPLATING FILING VDIS DECLARATIONS, WE ARE OF THE OPINION THAT BASED ON THE OFFICE NOTE OF AO AS WELL AS THE FACT THAT THE MATTERS WERE CRYSTALISED BEFORE THE SEARCH HAS TAKE N PLACE, THE CLAIMS OF BOGUS DEPRECIATION, BOGUS SALE AND LEASE BACK, PAPER PROFITS EARNED IN THE SALE OF ELECTRICITY AND THE A LLOWANCE TOWARDS INTEREST SHOULD BE CONSIDERED IN THE REGULAR ASSESS MENT AS ALL THE TRANSACTIONS ARE ARISING OUT OF THE BOOKS OF ACCOUN T. IF THERE ARE ANY OTHER TRANSACTIONS NOT CONNECTED WITH THE 133A PROC EEDINGS AND HAVING BEEN CRYSTALISED BY THE SEARCH, THESE HAVE T O BE CONSIDERED IN THE BLOCK ASSESSMENT. SINCE THIS REQUIRE DETAILE D EXAMINATION OF NOT ONLY THE SURVEY FOLDERS BUT ALSO VARIOUS STATEM ENTS RECORDED AND THE INCRIMINATING MATERIAL THEREIN, IN THE INTE REST OF JUSTICE, WE SET ASIDE THE ORDER OF AO AND DIRECT AO TO ESTABLIS H AND EXAMINE EACH ISSUE IN THE LIGHT OF LEGAL PRINCIPLES STATED ABOVE. . 18.9 IT IS ALSO ONE OF THE CONTENTION THAT ASSES SEE HAS NOT CLAIMED DEPRECIATION IN SOME YEARS, BUT STILL THESE WERE CO NSIDERED AS UNDISCLOSED DEPRECIATION CLAIM IN THE BLOCK ASSESSM ENT. SINCE ASSESSEE HAS NOT CLAIMED DEPRECIATION, THE QUESTION OF TREATING THE SAME AS UNDISCLOSED DOES NOT ARISE IN THE BLOCK ASS ESSMENT. THEREFORE, TO THAT EXTENT SINCE THE CLAIM IS NOT MA DE, DISALLOWANCE PER SE DOES NOT ARISE. THESE ASPECTS SHOULD BE KEPT IN MIND BY AO WHILE CRYSTALISING THE DISALLOWANCE OF DEPRECIATION CLAIMED IN THE REGULAR ASSESSMENT. 18.10 THE LEARNED CIT (A) HAS DELETED THE DISAL LOWANCE MADE IN REGULAR ASSESSMENT ON THE BASIS OF ASSESSEES CONTE NTIONS AND THE REVENUE ALSO DID NOT PREFER ANY APPEAL. THE LEARNED DR MADE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 52 OF 84 SUBMISSIONS THAT FOLLOWING THE PRINCIPLES OF HON'BL E BOMBAY HIGH COURT IN THE CASE OF SUDHAKAR T. PENDSE V. INCOME-T AX OFFICER 323 ITR 22 THAT A PARTICULAR STAND HAS BEEN ACCEPTED BY THE TAX PAYER, HE WOULD NOT BE PERMITTED TO TAKE CONTRARY STAND ON THE SAME ISSUE BEFORE THE HIGHER AUTHORITIES. WHILE AGREEING WITH THE PRINCIPLE, WE ARE UNABLE TO ACCEPT THE CONTENTIONS OF THE LEARNED DR AS THESE PROCEEDINGS ARE ENTIRELY DIFFERENT AND ASSESSEE CAN CONTEST WITHOUT PREJUDICE TO VARIOUS ARGUMENTS ON ISSUES OF LEGAL N ATURE. AS FAR AS THE LAW IS CONCERNED THE ISSUES WHICH GOT IDENTIFIE D IN THE REGULAR ASSESSMENT OR RECORDED IN BOOKS OF ACCOUNT CANNOT B E CONSIDERED IN THE BLOCK ASSESSMENT, UNLESS THERE IS INCRIMINAT ING MATERIAL. THE VDIS DECLARATION CANNOT BE CONSIDERED AS INCRIM INATING MATERIAL AS IT IS AN INTENTION OF ASSESSEE TO SETTL E THE MATTERS CONSEQUENT TO THE INQUIRIES ALREADY CONDUCTED AND C RYSTALLIZED IN THE REGULAR ASSESSMENT PROCEEDINGS. THESE DOCUMENTS WHICH WERE YET TO BE FILED BEFORE THE DEPARTMENT CANNOT BE CON SIDERED AS INCRIMINATING MATERIAL ESTABLISHING THE BOGUS NATUR E OF THE TRANSACTIONS, AS THEY DO NOT RELATE ANY PARTICULAR TRANSACTION AND THESE DOES NOT ESTABLISH ANYTHING EXCEPT THE INTENT ION OF THE COMPANY TO SETTLE THE DISPUTED MATTERS. HAVING CRYS TALLIZED THE ISSUE IN THE ASSESSMENT PROCEEDINGS, NOT ONLY IN TH E CASE OF ASSESSEE BUT ALSO IN THE CASE OF IDBI, THE BASIS ON WHICH CERTAIN DISALLOWANCES WERE ALREADY MADE, IT IS OBLIGATORY T HAT THESE MATTERS ARE TO BE EXAMINED IN THE REGULAR ASSESSMENT ONLY. IN CASE THE REVENUE DID NOT PREFER APPEAL ON THE ORDER OF CIT(A ) ON REGULAR ASSESSMENT, IT IS THE MISTAKE OF THE REVENUE BUT TH IS FORUM CANNOT PERMIT THE ADDITION OR DELETION IN BLOCK ASSESSMENT ON THE MATTERS WHICH WERE CRYSTALISED IN THE 133A PROCEEDINGS, WIT HOUT THERE BEING ANY INCRIMINATING MATERIAL. THEREFORE, THE RE VENUE CAN FILE THE APPEAL BELATEDLY WITH A CONDONATION SO AS TO RE VERSE THE FINDINGS OF THE CIT (A). 18.11 BEFORE CONCLUDING WE ARE ALSO CONSCIOUS OF THE FACT THAT LOT ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 53 OF 84 OF TIME HAS PASSED IN DECIDING THE MATTERS BOTH AT THE LEVEL OF CIT(A) (ALMOST FIVE YEARS) AND BEFORE THIS FORUM (A BOUT EIGHT YEARS) DUE TO VARIOUS FACTORS MAINLY AS THE COMPANY BECAME SICK AND IS FIGHTING MANY COURT CASES AS WELL. THE QUANTIFICATI ON OF LOSSES AND DEPRECIATION MAY BECOME ACADEMIC IN NATURE AS EFFLU X OF TIME MAY NOT PERMIT SETTING OF LOSSES IN LATER YEARS. AO ALS O MAY FIND DIFFICULT TO REOPEN THE PAST ASSESSMENTS WHICH MAY NOT BE PEN DING. THEREFORE THE ONLY OPTION IS TO GIVE FINDINGS IN TH ESE PROCEEDINGS ABOUT THE NECESSARY WORKING AS THESE MATTERS ARE TO BE EXAMINED IN DETAIL ON FACTS AND PASS CONSEQUENTIAL MODIFICATION ORDERS FOR CARRIED FORWARD LOSSES AND DEPRECIATION IN REGULAR ASSESSMENT PROCEEDINGS U/S 154 OR 155 OF THE ACT. ASSESSEE IS AT LIBERTY TO ADMIT THE INCOMES / LOSSES IN BLOCK PROCEEDINGS AS IT HAS TAKEN A STAND BEFORE CIT(A) AND ADMITTED UNDISCLOSED INCOME S, TO SETTLE MATTERS. HOWEVER, THE ABOVE SUGGESTION TO ASSESSEE IS ONLY ADVISORY AS LEGALLY THE ISSUES CAN BE CONTESTED ON PRINCIPLE S OF LAW, WHICH WE ARE AWARE. 18.12 IN THE RESULT THE BLOCK ASSESSMENT ORDER ON THE ABOVE GROUNDS ARE SET ASIDE WITH A DIRECTION TO AO TO REC ONSIDER THE MATTER AS PER THE GUIDELINES BROADLY STATED ABOVE. HE SHOULD ALSO CONSIDER THE DETAILED SUBMISSIONS MADE BEFORE AO AN D THE CIT (A) PLACED IN THE PAPER BOOK BEFORE US AND QUANTIFY THE UNDISCLOSED AMOUNTS ON THE BASIS OF INCRIMINATING MATERIAL. 19. GROUND NO.11 PERTAINS TO ADDITION MADE FOR IMAGINARY RECEIPTS OF FOREIGN REMITTANCES FOR AY 1997-98 FOR AN AMOUNT OF ` .10,00,00,000. 19.1 AO HELD THAT NO EXPLANATION WAS FURNISHED BY A SSESSEE ON THE ABOVE AMOUNT. SHRI HOMI PATEL AND SHRI SUDHIR P ETHE HAD STATED ON OATH THAT MOST OF THE PAPERS WERE FABRICA TED MESSAGES TO BE SHOWN TO THEIR CREDITORS INCLUDING BANK ASSURING THEM OF HUGE REMITTANCES IN THE NEAR FUTURE. ASSESSEE HAS JOINT VENTURE WITH ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 54 OF 84 ELF LUBRICANTS LTD PARIS AS ALSO WITH OTHER COMPANI ES IN HUNGARY AND MALAYSIA. ASSESSEE REFRAINED FROM GIVING ANY EX PLANATION IN RESPECT OF THE SEIZED PAPERS EXCEPT CONTESTING THAT A FEW OF THEM WERE FABRICATED DOCUMENTS AND NO REMITTANCES WERE A CTUALLY RECEIVED. 19.2. BEFORE THE CIT (A) IT WAS SUBMITTED THAT DUR ING THE COURSE OF SEARCH SHRI HOMI PATEL, MD ON OATH AS ALSO THE EXEC UTIVE DIRECTOR THAT THE SAID LOOSE PAPERS DID NOT REPRESENT ANY TR ANSACTION BUT THE PAPERS WERE FABRICATED FOR STALLING THE RECOVER Y BY THE CREDITORS BY ASSURING THEM THAT THE COMPANY WAS LIKELY TO REC EIVE REMITTANCES WHICH IN TURN WOULD BE UTILIZED FOR THE PAYMENT TO THE CREDITORS. THE STATEMENT MADE DURING SEARCH SHOULD BE BELIEVED IN RESPECT OF THE LOOSE PAPERS UNDER CONSIDERATION. 19.3 IT WAS HELD BY THE LEARNED CIT (A) THAT DECISI ON IN THE CASE OF P.R. METRANI (HUF) 251 ITR 244 (KAR), THE JURISDIC TIONAL HIGH COURT HELD THAT THE PRESUMPTION UNDER SECTION 132(4 )A OF THE ACT IS AVAILABLE AT THE ASSESSMENT STAGE AS WELL. THE P ROVISIONS OF SECTION 132(4)A OF THE ACT REMAINED IN THE STATUTE EVEN AFTER OMISSION OF SECTION 132(5) OF THE ACT W.E.F. 01.07. 1995. ACCORDING TO THE CIT (A), AO IS RIGHT TO FINALISE THE ASSESSM ENT RELYING UPON THE DOCUMENTS UTILIZED BY HIM FOR RAISING THE SAID PRESUMPTION, IF ASSESSEE FAILS TO REBUT THE SAID PRESUMPTION. IN TH E CASE OF CJ SHAH & CO., 246 ITR 671 (BOM.), THE BOMBAY HIGH COU RT HELD THAT WHERE THE MATERIAL IS DECIDED AFTER THE SEIZURE OPE RATIONS ARE CARRIED OUT, AO IS REQUIRED TO DETERMINE THE UNDISC LOSED INCOME ON ESTIMATIONS. IN THE CASE OF RAJENDRA KUMAR LOHATI, 266 ITR 621 (RAJ.) IT WAS HELD THAT THE ADDITION IN A BLOCK ASS ESSMENT CAN BE MADE EVEN WHERE THERE IS NO DIRECT EVIDENCE FOUND D URING THE COURSE OF SEARCH. THE RECORDING CANNOT BE EQUATED W ITH LEASE RENT PAYMENTS AND DEPRECIATION IN RESPECT OF NON EXISTIN G ASSET. ONUS IS ON ASSESSEE TO EXPLAIN THE ENTRIES THEREIN IN A PROPER MANNER IN TERMS OF SECTION 132(4A) OF THE ACT. THE ACTION OF AO OF MAKING ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 55 OF 84 ESTIMATION IS SUSTAINED. 19.4. BEFORE THE ITAT IT WAS SUBMITTED THAT: A) STATEMENT ON OATH CLEARLY CONFIRMED THAT THE LOO SE PAPERS DID NOT REPRESENT ANY INCOME AND WERE FABRIC ATED FOR STALLING THE RECOVERY BY CREDITORS. B) ADHOC ADDITION BASED ON SURMISES AND GUESS WORK WIT HOUT ANY EVIDENCE OR PROOFS. C) THE SAME CANNOT BE TREATED AS UNDISCLOSED INCOME D) OUTSIDE THE AMBIT OF S. 158BB E) AO HAS NOT IDENTIFIED ANY PAPER NOR HAS HE SPECIFIE D ANY TRANSACTION. F) MOST OF THE PAPERS HAD NO LINKS TO ASSESSEE. G) SOME PAPERS REPRESENTED FICTIONAL RECORDINGS AND WERE FABRICATED TO RAISE MORE FUNDS FOR THE COMPANY. H) ESTIMATIONS WITHOUT BASIS OR PROOFS CANNOT BE SUBJE CT TO BLOCK ASSESSMENT. I) THE AMOUNT OF RS.10.00 CRORES REPRESENTING THE A LLEGED FOREIGN REMITTANCES DID NOT REPRESENT ANY UNACCOUNT ED INCOME. J) THERE ARE NO J.V OF THE COMPANY AS ALLEGED BY AO. FURTHER NO SPECIFIC LOOSE PAPER HAS BEEN CONSIDERED FOR MAK ING THIS ADDITION BY AO. ASSESSEE HAS EXPLAINED MOST OF THE PAPERS WERE FABRICATED FOR SATISFACTION OF THE BANKERS. K) THE AO HAS NOT PROVIDED ASSESSEE WITH ANY DETAILS WHATSOEVER ON LOOSE PAPERS, WHETHER THE SAID PAPERS BELONG TO THE COMPANY, THUS MAKING IT DIFFICULT FOR ASSESS EE TO EXPLAIN THE ENTRIES THEREIN IN A PROPER MANNER TO T HE HON. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 56 OF 84 CIT(A). L) COPIES OF LOOSE PAPERS PRESENTLY NOT AVAILABLE W ITH COMPANY THOUGH REPEATEDLY APPLIED FOR. M) NO WORKING OF ADDITION HAS BEEN PROVIDED BY THE A.O 19.5 CASE LAWS RELIED BY CIT(A) ARE NOT APPLICABLE TO THE FACTS OF THE CASE OF ASSESSEE. THIS CASE CITED BY CIT(A) IS IN FAVOUR OF ASSESSEE AND ACTUALLY SUBSTANTIATES THE STAND OR AS SESSEE COMPANY THAT NO ADHOC OR ESTIMATED ADDITION CAN BE MADE ON THE BASIS OR LOOSE PAPER ROUND DURING SEARC H UNLESS THEY ARE PROVED TO HAVE GENERATED UNDISCLOSE D INCOME. ONCE IT IS FOUND AND ESTABLISHED THAT SEIZE D MATERIALS REPRESENTED UNDISCLOSED INCOME, THEN ONLY IN SUCH CIRCUMSTANCES IT WAS POSSIBLE TO MAKE A FAIR ESTIMA TION OF UNDISCLOSED INCOME. ASSESSEE RELIED ON THE FOLLOWI NG CASE LAW IN SUPPORT OF CONTENTIONS: 1. RAJENDRAKUMAR LAHOTI, 266 ITR 621 (RAJ.) IN THIS CASE, UNDISCLOSED INCOME WAS COMPUTED SINCE THERE WERE CERTAIN EVENTS WHICH HAD PROVED THAT CER TAIN UNDISCLOSED EXPENDITURE 'AS INCURRED BY ASSESSEE. THE LD. CIT ( A) HAS ERRED IN RELATING THIS CASE IN ASSESSEES CASE BECAUSE MERE EXISTENCE OF CERTAIN LOOSE PAPERS DIDN'T CONFIRM THAT THE APPELL ANT HAS EARNED UNDISCLOSED INCOME. AO DID IN NO WAY SPECIFY ON WHA T BASIS AN INCOME OF RS. 10 CRORES WAS UNDISCLOSED ON THE BASI S OR LOOSE SEIZED PAPERS. ACCORDINGLY, IN THE SAID LAHOTI CASE THE FA CT THAT THE EVENT HAD TAKEN PLACE WAS UNDISPUTED AND' HAT 'AS E STIMATED WAS THE EXPENDITURE INCURRED ON SUCH UNDISPUTED INCOME. IN ASSESSEES CASE NO SUCH FINDINGS ARC ESTABLISHED WARRANTING AN ESTIMATION. 2. P.R.METRANI(HUF) 251 ITR 244 (KAR) IN THIS CASE. ONUS WAS DISCHARGED BY THE DEPTT. AND ASSESSEE RAILED TO DISCHARGE HIS BURDEN. WHILE IN T HE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 57 OF 84 APPELLANT'S CASE ONUS WAS ON A.O. TO HAVE DISPROVED THE FACTS, SUCH A HUGE ADDITION COULD NOT HAVE BEEN MAD E SIMPLY ON THE BASIS OR LOOSE PAPERS OF NO CONSEQUEN CE AND WITHOUT GIVING ANY EXPLANATION. 19.6 WE HAVE CONSIDERED THE RIVAL CONTENTIONS. AS SEEN FROM THE OFFICE NOTE EXTRACTED EARLIER AO MADE ENQUIRIES WIT H BANKS AND CAME TO A CONCLUSION THAT THE SO CALLED REMITTANCES ARE NOT GENUINE. THEREFORE THE CONTENTION OF ASSESSEE THAT THESE ARE FORGED DOCUMENTS FOR THE PURPOSE OF OBTAINING CREDI T CAN BE ACCEPTED. SINCE NO INCOME/RECEIPT WAS IDENTIFIED TH E DOCUMENT NEED NOT BE CONSIDERED FOR MAKING ANY ADDITION THAT TOO ADHOC ADDITIONS. THE GROUND RAISED BY ASSESSEE IS THEREFO RE ALLOWED. 20. GROUND NO.12 (A)(I) IS WITH REGARD TO THE OUTSTANDING BILL OF SCHOLAR FINANCE MANAGEMENT PVT. LTD FOR AY 1998-99 FOR AN AMOUNT OF ` .4,55,000. 20.1 IT WAS HELD BY AO THAT LOOSE PAPER WAS FOUND ( NO.5 OF ANNEXURE A-3 ON PAGE OF ASSESSMENT ORDER). HENCE AS SESSEE WAS ASKED TO FURNISH COMPLETE DETAILS RELATING TO THE T RANSACTIONS MENTIONED IN THE ABOVE PAPERS. NOTHING WAS HEARD FR OM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVANT YEAR. 20.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT TH E LOOSE PAPER IS A REMINDER TO MR. PETHE, DIRECTOR OF AVON. IT REMINDS THE COMPANY AVON ABOUT THE OUTSTANDING BILL OF ` .4.55 LAKHS WHICH WAS DUE TO BE PAID ON 13.05.1997 AND THE SAID LOOSE PAPER HAS NOTHING TO DO WITH THE AFFAIRS OF THE COMPANY REPL. THE SAID LOOS E PAPER IN ANY CASE DOES NOT INDICATE ANY RECEIPT OF INCOME BY REP L OR ANYONE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 58 OF 84 ELSE AND THE STATEMENT ON OATH NOWHERE DEALS WITH T HE SAID LOOSE PAPER UNDER CONSIDERATION. 20.3 IT WAS HELD BY THE CIT (A) THAT THE LETTER DOE S NOT INDICATE THAT THE AMOUNT IS DUE FROM AVON GLOBAL PVT. LTD RATHER THERE IS NO REFERENCE OF THAT CONCERN IN THE CORRESPONDENCE. IF THE REGD. OFFICE OF THE SAID CONCERN AVON IS LOCATED AT DADAR (EAST) MUMBAI, THERE IS NO REASON FOR THE PAPER BEING FOUND IN THE POSSE SSION OF THE ASSESSEE COMPANY. HE UPHELD THE ADDITION. 20.4 ASSESSEE BEFORE US SUBMITTED THAT: (I) THE SAID LOOSE PAPER HAS NOTHING TO DO WITH THE AFFAIRS OF THE COMPANY REPL (II) THE SAID LOOSE PAPER IN ANY CASE DOESN'T INDI CATE ANY RECEIPT OF INCOME BY REPL OR ANYONE ELSE. (III) THE SAID PAPER DOES NOT REPRESENT ANY UNACCO UNTED INCOME OF THE COMPANY (IV) THE STATEMENT ON OATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSIDERATION (V) THAT UNDISCLOSED INCOME IMAGINED BY THE LD. A.O. WITHOUT THERE BEING ANY PROOFS TO SUPPORT ANY ADDITION 20.5 WE AGREE WITH THE CONTENTIONS. AS SEEN FROM THE DOCUMENT AND CONTENTIONS THE TRANSACTION WAS A INTER OFFICE NOTE ABOUT MONEY TO BE RECEIVED AND MADE BY DIRECTOR OF AVON. THIS DOCUMENT HAS NO RELATION TO COMPANY AND SO NO UNDISCLOSED IN COME CAN BE BROUGHT TO TAX ON THE SO CALLED RECEIVABLE. WE ARE ALSO GUIDED BY THE FINDING THAT MOST OF THE TRANSACTIONS ARE RECOR DED IN BOOKS AND PRACTICALLY NO UNRECORDED TRANSACTION. THE GROUND I S ALLOWED. 21. GROUND NO.12(A)(II) IS RELATING TO INTEREST FOR THE AY 1998-99 FOR ` .45,164. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 59 OF 84 21.1 IT WAS HELD BY AO THAT LOOSE PAPER NO.9 IN ANNEX.A-3 ON PAGE 19 OF THE ASSESSMENT ORDER VIDE PAGE 5123 OF P B 3B WAS FOUND. HENCE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS RELATING TO THE TRANSACTIONS MENTIONED IN THE ABOVE PAPERS. NOTHING WAS HEARD FROM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVAN T YEAR. 20.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT AO PR ESUMED THAT THE SAID LOOSE PAPER REPRESENTED INCOME OF THE COMPANY WHICH HAD NOT BEEN ACCOUNTED. AO SHOULD ALSO HAVE ADDED THE AMOUN T OF ` .12,370 BEING TDS ON SUCH INTEREST AND THE SAID LOO SE PAPER REPRESENTS THE INTEREST CALCULATION IN RESPECT OF A N ICD RECEIVED BY THE COMPANY WHICH WAS DULY ACCOUNTED IN THE BOOKS O F COMPANY. 20.3 IT WAS HELD BY THE CIT (A) THAT THOUGH THERE I S NO MENTION OF ANY CONCERN IN THE DOCUMENT ON THE BASIS OF WHICH T HE ADDITION HAS BEEN MADE, THE FACT REMAINS THAT THE DOCUMENT W AS FOUND IN THE POSSESSION OF ASSESSEE COMPANY. THEREFORE, THE ONUS IS ON ASSESSEE COMPANY TO DISCHARGE FULLY THE NATURE OF E NTRIES MADE THEREIN. 21.4 IT WAS SUBMITTED BEFORE US THAT: A) THE SAID PAPER DOES NOT REPRESENT ANY UNACCOUNTE D INCOME OF THE COMPANY B) THE SAID LOOSE PAPER IN ANY CASE DOESN'T INDICAT E ANY RECEIPT OF INCOME BY REPL OR ANYONE ELSE. C) THAT THE TRANSACTION WERE RELATED TO THE COMPANY ARE DULY ACCOUNTED IN THE BOOKS OF ACCOUNT D) THE STATEMENT ON OATH NOWHERE DEALS WITH THE SAI D LOOSE PAPER UNDER CONSIDERATION E) A.O. PRESUMED THAT THE SAID LOOSE PAPER REPRESEN TED INCOME OF THE COMPANY WHICH HAD NOT BEEN ACCOUNTED F) A.O. SHOULD ALSO HAVE ADDED THE AMOUNT OF RS. 12,370 BEING TDS ON SUCH INTEREST ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 60 OF 84 G) THE SAID LOOSE PAPER REPRESENTS THE INTEREST CALCULATION IN RESPECT OF AN ICD RECEIVED BY THE COMPANY WHICH WAS DULY ACCOUNTED IN THE BOOKS OF COMPANY H) THAT THE UNDISCLOSED INCOME IMAGINED BY AO WITHO UT THERE BEING ANY PROOFS TO SUPPORT ANY ADDITION. 21.5 THIS CONTENTION OF ASSESSEE ARE VALID. THER E IS TDS ALSO MADE ON THE AMOUNT. THIS INDICATES THAT THE TRANSAC TION IS ONE OF REGULAR INTEREST RECEIPT. THE DOCUMENT SEIZED ALSO DOES NOT INDICATE THE COMPANY TO WHICH IT PERTAINS TO . THE QUERY BY AO AS EXTRACTED IN THE ORDER (AT PAGE 19) WAS ONLY ASKING THE ASSES SEE TO EXPLAIN WHETHER THE SAME WAS RECORDED BY ANY GROUP CONCERNS . IN VIEW OF THIS, WE HOLD THAT THIS DOCUMENT DOES NOT ESTABLISH ANY UNACCOUNTED INCOME. IN FACT, AO MADE ADDITION OF NE T AMOUNT WITHOUT CONSIDERING THE TDS MADE ON THE GROSS AMOUN T. THE GROUND IS ALLOWED. 22. GROUND NO.12(A)(III ) IS WITH REGARD TO LOAN AMOUNT ADJUSTMENT FOR THE AY 1998-99 AMOUNTING TO ` .70,00,000 AND ` .4,34,000. 22.1 AO FOUND LOOSE PAPER NO.12 & 125 IN ANNEX A- 3. ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS RELATING TO T HE TRANSACTIONS MENTIONED IN THE ABOVE PAPERS. NOTHING WAS HEARD FR OM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVANT YEAR. 22.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT ASSES SEE IS NOT CONNECTED WITH THE SAID LOOSE PAPERS. THE SAID PAPE RS DO NOT BEAR ANY NAME OF ASSESSEE AND DO NOT INDICATE ANY INCOME OR UNDISCLOSED INCOME/RECEIPT OF ASSESSEE. THE SAID LO OSE PAPER HAS NOTHING TO DO WITH THE AFFAIRS OF THE COMPANY REPL. THE SAID LOOSE PAPER IN ANY CASE DOESN'T INDICATE ANY RECEIPT OF I NCOME BY REPL OR ANYONE ELSE. THE SAID PAPER DOES NOT REPRESENT A NY ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 61 OF 84 UNACCOUNTED INCOME OF THE COMPANY. THE STATEMENT ON OATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSI DERATION. 22.3 IT WAS HELD BY THE CIT (A) THAT THE SAID DOC UMENT IS ADDRESSED TO MR. PETHE OF REPL, THEREFORE, IT IS FO R ASSESSEE TO DISCHARGE THE ONUS. CONSIDERING IT HAS FAILED TO DO SO, ADDITION IS SUSTAINED. 22.4 IT WAS SUBMITTED BEFORE US THAT THE SAID LOOSE PAPER HAS NOTHING DO WITH THE AFFAIRS OF THE COMPANY REPL. TH E SAID LOOSE PAPER IN ANY CASE DOES NOT INDICATE ANY RECEIPT OF INCOME BY REPL OR ANYONE ELSE. THE SAID PAPER DOES NOT REPRES ENT ANY UNACCOUNTED INCOME OF THE COMPANY. THE STATEMENT ON OATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSI DERATION AND THAT UNDISCLOSED INCOME IMAGINED BY THE LD. A.O. WITHOUT THERE BEING ANY PROOFS TO SUPPORT ANY ADDITION. 22.5 CONSIDERING THE SUBMISSION ON THE ISSUE, WE RESTORE THE ISSUE TO THE FILE OF AO TO EXAMINE THE DOCUMENT AND THE RECORDS TO DECIDE WHETHER THE SAME CAN BE CONSIDERED AS UNA CCOUNTED. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 23. GROUND NO.12(A)(IV) IS WITH REGARD TO N. CHERAJ TRAVELS PVT. LTD FOR AY 1998-99 FOR ` .8,371. 23.1 IT WAS HELD BY AO THAT LOOSE PAPER NO.2 OF ANN EX.A-3 WAS FOUND AND HENCE ASSESSEE WAS ASKED TO FURNISH COMPL ETE DETAILS RELATING TO THE TRANSACTIONS MENTIONED IN THE ABOVE PAPERS. NOTHING WAS HEARD FROM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVAN T YEAR. 23.2. IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE LOOSE PAPER APPEARS TO BE A BILL RAISED BY SOME TRAVEL AGENT OF DELHI ON ONE P. CHAKRAVORTHY AND IT HAS NO RELATIONSHIP WHATSOEVER WITH THE AFFAIR ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 62 OF 84 OF THE COMPANY. 23.3 IT WAS HELD BY THE CIT (A) THAT ASSESSEE FAILE D TO SHOW THAT SHRI P. CHAKRAVORTY WAS AN EMPLOYEE OF THE COMPANY AND IF SO PAYMENT INDICATED IN THE DOCUMENT HAS BEEN ACCOUNTE D FOR IN THE REGULAR BOOKS OF ACCOUNT. 23.4 BEFORE US IT WAS SUBMITTED THAT: (A) THE LOOSE PAPER APPEARS TO BE A BILL RAISED BY SOME TRAVEL AGENT OF DELHI ON ONE P.CHAKRAVORTY WHICH HA S WHATSOEVER NO RELATION WITH THE COMPANY (B) THE SAID PAPER DOES NOT REPRESENT ANY UNACCOUNT ED INCOME OF THE COMPANY (C) THE SAID LOOSE PAPER IN ANY CASE DOESN'T INDICATE ANY RECEIPT OF INCOME BY REPL OR ANYONE ELSE. (D) THE STATEMENT ON OATH NOWHERE DEALS WITH THE SA ID LOOSE PAPER UNDER CONSIDERATION (E) THAT UNDISCLOSED INCOME IMAGINED BY THE LD. A.O . WITHOUT THERE BEING ANY PROOFS TO SUPPORT ANY ADDIT ION (F) ASSESSEE NEVER CLAIMED THAT SHRI P.CHAKRAVORTHY WAS AN EMPLOYEE OF THE COMPANY 23.5 CONSIDERING THE FINDING BY AO THAT MOST OF THE TRANSACTIONS ARE RECORDED IN BOOKS AND ALSO THE FACT THAT THIS BILL DOES NOT PERTAIN TO ASSESSEE, WE ARE INCLINED TO ACCEPT ASSESSEE CONTEN TION THAT THIS DOES NOT PERTAIN TO ASSESSEE AND MORE SO AS UNACCOU NTED TRANSACTION. THERE IS NO ENQUIRY ALSO WHETHER THE A MOUNT WAS PAID OR SETTLED. FOR THESE REASONS WE ALLOW THE GROUND A ND DELETE THE ADDITION. 24. GROUND NO.12(A)(V) PERTAINS TO RUNNER CORPORATION FOR 1998-99 FOR ` .25,00,000. 24.1 IT WAS HELD BY AO THAT LOOSE PAPER NO.31 WAS F OUND IN ANNEXURE A-4 AND HENCE ASSESSEE WAS ASKED TO FURNIS H COMPLETE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 63 OF 84 DETAILS RELATING TO THE TRANSACTIONS MENTIONED IN T HE ABOVE PAPERS. NOTHING WAS HEARD FROM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVAN T YEAR. 24.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE S AID LOOSE PAPER INDICATES THE MOVEMENTS IN THE BANK BALANCE AND THE SAID TRANSACTIONS RELATE TO THE REGULAR AFFAIRS OF THE C OMPANY AND DO NOT REFLECT ANYTHING WHICH IS UN-ACCOUNTED OR IS IN THE NATURE OF UNDISCLOSED INCOME. THE SAID FUNDS AS EXPECTED WERE NOT RECEIVED FROM M/S RUNNERS CORPORATION AND THE STATEMENT ON O ATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSIDERATION . 24.3. IT WAS HELD BY THE CIT (A) THAT MERE FACT THA T IN THE ACCOUNTS OF M/S. RUNNERS CORPORATION THIS AMOUNT IS NOT APPEARI NG IS OF NO CONSEQUENCE. THE CLAIM OF ASSESSEE HAS BEEN THAT LI ST WAS PREPARED IN CONNECTION WITH WORKING OUT OF THE ANTICIPATED F UND TO BE RAISED. IF THAT IS SO AND THE AMOUNT WAS NOT RECEIVED, ULTI MATELY ASSESSEE SHOULD HAVE PRODUCED SOME CORROBORATIVE EVIDENCES. HAVING FAILED TO DO SO THE AMOUNT IS LIABLE FOR ADDITION. 24.4 BEFORE US IT WAS SUBMITTED THAT THE SAID PAPER DOES NOT REPRESENT ANY UNACCOUNTED INCOME OF THE COMPANY AND THE SAID LOOSE PAPER IN ANY CASE DOESN'T INDICATE ANY RECEIPT OF INCOME BY REPL OR ANYONE ELSE. THE TRANSACTIONS WERE RELATED TO THE COMPANY ARE DULY ACCOUNTED IN THE BOOKS OF ACCOUNT. THE STA TEMENT ON OATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSI DERATION AND THAT UNDISCLOSED INCOME IMAGINED BY THE LD. A.O. WI THOUT THERE BEING ANY PROOFS TO SUPPORT ANY ADDITION. EVEN M/S RUNNERS CORPORATION WAS NOT EXAMINED BY AO. IT WAS ALSO NOT KNOWN WHY ONLY M/S RUNNERS CORPORATION WAS SELECTED, OUT OF S O MANY PARTIES. 24.5 WE HAVE CONSIDERED THE ISSUE. THE COPY OF T HE DOCUMENT WAS NOT PLACED BEFORE US. MOREOVER THE CONTENTION THAT THIS TRANSACTION ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 64 OF 84 IS ACCOUNTED WAS NOT EXAMINED PROPERLY. THEREFORE I N THE INTEREST OF JUSTICE, WE RESTORE THE MATTER TO AO TO EXAMINE THE DOCUMENT AND CONTENTIONS TO DECIDE AFRESH. GROUND ALLOWED FOR ST ATISTICAL PURPOSE. 25. GROUND NO.12(A)(VI) PERTAINS TO SHRI S.N. DHRUV FOR AY 1998- 99 FOR ` .10,00,000. 25.1 IT WAS SEEN BY AO THAT LOOSE PAPER NO.38 TO 41 WAS FOUND IN ANNEXURE A-3 AND HENCE ASSESSEE WAS ASKED TO FURNIS H COMPLETE DETAILS RELATING TO THE TRANSACTIONS MENTIONED IN T HE ABOVE PAPERS. NOTHING WAS HEARD FROM ASSESSEE AND THEREFORE, THE SAME IS TREATED REPRESENTING THE UNDISCLOSED INCOME FOR THE RELEVAN T YEAR. 25.2 IT WAS SUBMITTED BEFORE THE CIT (A) THAT REPL AND OTHER CONCERNS HAD IN YEAR 1993 ACQUIRED SHARES OF SAPLE S SCALE MFG.CO LTD. THE LOOSE PAPERS CONTAIN THE DETAIL OF PAYMENT S MADE TO SHRI S.N. DHRUV WHO WAS MAJORITY SHAREHOLDER OF THE SAID SAPLES SCALE. THESE PAYMENTS WERE MADE BY ACCOUNT PAY CHEQUE IN A LL CASES BUT FOR ` .10.00 LAKHS WHICH WAS PAID IN CASH BY M/S AVON WHI CH ARE SELF EXPLANATORY AND THE PAYMENTS ARE DULY ACCOUNTE D IN THE BOOKS OF ACCOUNT OF VARIOUS CONCERNS. 25.3 IT WAS HELD BY THE CIT (A) THAT THERE IS NO IN DICATION THAT THE PAYMENT OF ` .10.00 LAKHS HAS BEEN MADE BY M/S AVON GLOBAL PVT. LTD AS MADE OUT BY ASSESSEE. THE ADDITION IS SUSTAI NED AS INCRIMINATING DOCUMENT WAS FOUND IN THE POSSESSION OF ASSESSEE. 24.4 BEFORE US IT WAS SUBMITTED THAT COMPANY REPL & OTHER CONCERNS HAD IN YEAR 1993 ACQUIRED SHARES OF SAP IE 'S SCALE MFG. CO. LTD. THE LOOSE PAPERS CONTAIN THE DETAIL OF PAY MENTS MADE TO SHRI S.N.DHRUV WHO WAS MAJORITY SHAREHOLDER OF THE SAID SAP LE'S SCALE. THESE PAYMENTS WERE MADE BY ACCOUNT PAYEE CH EQUES IN ALL CASES BUT FOR RS. 10.00 LACS WHICH WAS PAID IN CASH BY M/S. AVON. THESE PAPERS ARE SELF EXPLANATORY AND THE PAYMENTS ARE DULY ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 65 OF 84 ACCOUNTED IN THE BOOKS OF ACCOUNT OF VARIOUS CONCER NS. THE SAID PAPER DOES NOT REPRESENT ANY UNACCOUNTED INCOME OF THE CO MPANY MOREOVER, THE STATEMENT ON OATH NOWHERE DEALS WITH THE SAID LOOSE PAPER UNDER CONSIDERATION. 25.4 GROUND NO.12(A)(VII) PERTAINS TO SHRI RECEIPT FROM G S KHATOR FOR AY 1996-97 FOR ` .7,00,000 25.5 LOOSE PAPER NO.1 AND 2 OF ANNEXURE A-8 WAS FO UND BY AO, HENCE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAIL S RELATING TO THE TRANSACTIONS MENTIONED IN THE ABOVE PAPERS. NOTHING WAS HEARD FROM ASSESSEE AND THEREFORE, THE SAME IS TREATED RE PRESENTING THE UNDISCLOSED INCOME FOR THE RELEVANT YEAR. 25.6 BEFORE THE CIT (A) IT WAS SUBMITTED THAT AS SESSEE AND ITS GROUP CONCERNS HAD EFFECTED WITHDRAWALS FROM THE AC COUNTED BANK ACCOUNTS FROM WHICH A PAYMENT OF ` .7.00 LAKHS WAS MADE TO MR. G.S. KHATOR, AN EMPLOYEE OF ASSESSEE AND NO ACTION WAS INITIATED AGAINST 3 RD PARTIES TILL DATE. 25.7 BEFORE US ALSO ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE LEARNED CIT (A) AND THE SAID PAPER DOES NOT REP RESENT ANY UNACCOUNTED INCOME OF THE COMPANY. 25.8 IN THESE TWO SUB GROUNDS (12 (A) (VI) AND 1 2 (A) (VII) ALSO THE MATTER REQUIRE EXAMINATION BY AO. THE COPY OF THE D OCUMENT WAS NOT PLACED BEFORE US. MOREOVER THE CONTENTION THAT THIS TRANSACTION IS ACCOUNTED WAS NOT EXAMINED PROPERLY. THEREFORE I N THE INTEREST OF JUSTICE, WE RESTORE THE MATTER TO AO TO EXAMINE THE DOCUMENT AND CONTENTIONS TO DECIDE AFRESH. GROUNDS ALLOWED FOR S TATISTICAL PURPOSE. 26. GROUND NO.13 PERTAINS TO INVESTMENT IN IMMOVABLE PROPERTIES FOR AY 1998-99 OF ` .50,00,000 ( ` .19,50,00,000 DELETED BY THE CIT (A). 26.1 IT WAS HELD BY AO THAT ASSESSEE WAS ASKED TO F URNISH COMPLETE DETAILS IN RESPONSE TO SHOW CAUSE NOTICE DATED 28.0 9.99 FAILING ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 66 OF 84 WHICH IT WAS HELD THAT THESE PROPERTIES WERE IN FAC T OWNED BY ASSESSEE IN DIFFERENT NAMES. SOME OF THE PROPERTIES ARE NOT PRIMA FACIE APPEARING IN ASSESSEES BOOKS OF ACCOUNT. ALL SUCH PROPERTIES ARE HELD TO BE BENAMI PROPERTIES OF ASSESSEE AS NO EXPLANATION REGARDING THE IDENTITY OF THE PARTY CONCERNED AND T HE SOURCE OF ACQUISITION HAS BEEN FURNISHED BY ASSESSEE. INDIVID UAL COST OF ACQUISITION OF EACH PROPERTY WAS NOT MADE AVAILABLE BY ASSESSEE. IN THE ABSENCE OF ANY EXPLANATION, AO ADDED AN AMOUNT OF ` .20.00 CRORES AS UNDISCLOSED PART OF THE INVESTMENT IN ACQ UIRING THE PROPERTIES ON ESTIMATED BASIS. 26.2 BEFORE THE CIT (A) IT WAS SUBMITTED THAT TH E SAID PROPERTY BELONGS TO ELTROL LTD AND ASSESSEE HAD AGREED TO AC QUIRE THE SHARES OF ELTROL LTD FROM ITS ERSTWHILE PROMOTER AND HIS G ROUP. 26.3 IT WAS HELD BY THE LEARNED CIT (A) THAT E XCEPT FOR THE PROPERTY BEING W 163 MIDC, DOMBIVALI, THE OWNERSHIP OF REMAINING PROPERTIES STANDS ESTABLISHED AND NO ADDITION ON TH IS ACCOUNT CAN BE SUSTAINED. NO DETAILS REGARDING PROPERTY BEING W -163 MIDC DOMBIVALI WAS FURNISHED BY ASSESSEE EVEN AFTER COPY OF REMAND REPORT SENT BY AO. CONSEQUENTLY, OUT OF ` .20.00 CRORES ADDED TO THE UNDISCLOSED INCOME, THE ADDITION OF ` .50.00 LAKHS WAS SUSTAINED AND BALANCE OF ` .19.50 CRORES DELETED. 26.4 BEFORE US IT WAS SUBMITTED THAT AO HAS ADDE D THE SAID AMOUNT ON THE BASIS OF LOOSE PAPER NO.29 OF ANNEXUR E A-4. A BARE LOOK CONFIRMS THAT THE SAID PAPER NEITHER INDICATES ANY VALUE NOR INVESTMENT NOR THE YEAR OF INVESTMENT & NOWHERE STA TES OR CONFIRMS THE EXISTENCE ON ANY UNACCOUNTED OR UNDISCLOSED INC OME. AO HAS SIMPLY ASSUMED THAT THE SAID LOOSE PAPER REPRESENTE D SUCH INCOME. THE OWNER OF THE PROPERTY BEING W-163, MIDC, DOMBIV ALI WAS ELTROL LTD. LOOSE PAPER ITSELF CONFIRMS THE 3 RD PARTY OWNERSHIP. IT DOES NOT REPRESENT ANY UNDISCLOSED INCOME UNDER SECTION.158B (B) AND THE SAME IS OUTSIDE THE AMBIT OF SECTION. 158BB. AS FAR AS COLUMN OF APPROXIMATE PRICE IS CONCERNED, THAT IT IS AN EST IMATE MADE OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 67 OF 84 REALIZABLE VALUE OF PROPERTY IN A ROUGH ATTEMPT TO ASCERTAIN THE NET WORTH OF THE GROUP. THE SAID PROPERTY BELONGS TO EL TROL LTD., ASSESSEE HAD AGREED TO ACQUIRE THE SHARES OF ELTROL LTD. FRO M ITS ERSTWHILE PROMOTER AND HIS GROUP BUT SUBSEQUENTLY THE DEAL DI DNT MATERIALIZE AND THE SHARES ALONG WITH THE PROPERTY WERE GIVEN B ACK TO ITS ERSTWHILE PROMOTERS. 26.5 CONSIDERING THE SUBMISSIONS AND THE FACT THAT ALL OTHER PROPERTIES WERE ACCEPTED, THERE IS PRIMA FACIE EVID ENCE THAT THE CONTENTION OF ASSESSEE IS CORRECT. MOREOVER THE SHA RES OF ELTROL WAS NOT ACQUIRED BY ASSESSEE COMPANY OR DIRECTOR. THERE FORE THE ADDITION CAN NOT BE MADE JUST BECAUSE THE DOCUMENTS WAS SEIZED. CONSIDERING THAT ALL OTHER PROPERTIES WERE VERIFIE D AND ACCEPTED, WE DO NOT SEE ANY REASON TO SUSTAIN THE ADDITION WHEN THERE IS NO EVIDENCE THAT THE SAID PROPERTY BELONG TO ASSESSEE. THE ADDITION IS DELETED. GROUND IS ALLOWED. 27. GROUND NO.14 PERTAINS TO SHARES SEIZED OF COMPANY AND M/S TRANS POWER ENGG. LTD FOR AY 1998-99 AMOUNTING TO ` .26,88,300. 27.1 IT WAS HELD BY AO THAT ANNEXURE O TO THE PAN CHNAMA DATED 27.02.1998 CONFIRMED SEIZURE OF ` .2,68,830 SHARES OF FACE VALUE OF ` .10.00 EACH OF M/S TRANS POWER ENGG. LTD AND M/S RE PL ENGG. LTD IN THE NAMES OF VARIOUS PERSONS FOUND AT THE TI ME OF SEARCH. ASSESSEE WAS UNABLE TO PROVIDE ANY EXPLANATION NOR ANY EVIDENCE OR CONFIRMATIONS FROM THE PARTIES TO THE EFFECT THAT T HESE PERSONS WERE REAL AND BENEFICIAL OWNERS OF THE SEIZED SHARES. TH US THE VALUE OF SEIZED SHARES IS TREATED AS ASSESSEE UNDISCLOSED I NCOME. 27.2 BEFORE THE CIT (A) IT WAS SUBMITTED THAT THE SEIZED SHARES MAINLY BELONG TO LYLA HOMI PATEL WHO IS A FAMILY ME MBER OF THE PROMOTER. THE SHARES HAVE BEEN ACQUIRED BY THE PERS ONS AT THE TIME OF PUBLIC/RIGHTS ISSUE AND SINCE THEN ARE OWNED BY THEM. THESE SHARES ARE ACQUIRED BY THEM OUT OF THEIR ACCOUNTED FUNDS AND THE PAYMENT THEREOF IS MADE BY ACCOUNT PAYEE CHEQUE AND THE INVESTMENT IS DULY REFLECTED IN THE RESPECTIVE HAND S. THE SHARES ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 68 OF 84 WERE KEPT WITH THE COMPANY TO MEET ANY CONTINGENCY OF RAISING FUNDS BY USING THEM AS COLLATERAL SECURITY. THE COM PANIES ACT AND IN PARTICULAR SECTION.77 OF COMPANIES ACT PROHIBITS A COMPANY FROM PURCHASING ITS OWN SHARES AND THEREFORE, THE COMPAN Y COULD NEVER HAVE BOUGHT THESE SHARES. NON INQUIRY WAS MADE BY A O WITH THESE PERSONS TO CONFIRM HIS ACTION. 27.3 IT WAS OBSERVED BY THE CIT (A) THAT ASSESSE E HAS NOT BEEN ABLE TO PRODUCE ANY EVIDENCE OF THE SOURCES OF INVE STMENT. WHILE THE SHARES OF TRANS POWER ENGG. LTD WERE ACQUIRED BY TH E ASSESSEE COMPANY AND ITS ASSOCIATES FROM THE OPEN MARKETS. H OWEVER, NO EVIDENCE AS TO SOURCE OF INVESTMENT HAS BEEN PRODUC ED. PROVISIONS OF SECTION 77 OF THE COMPANIES ACT IS NO RELEVANT I N THE CASE CONSIDERING THAT IS ONLY APPLICABLE WHERE THERE IS A LEGAL ACQUISITION HAVING TAKEN PLACE. 27.4 BEFORE US IT WAS SUBMITTED THAT: (A) THESE SHARES WERE IN THE NAME OF 3RD PARTIES & MANY WERE THE SHARES OF THE COMPANY REPL ITSELF. (B) NO MATERIAL OR LOOSE PAPER FOUND OR SEIZED TO SHOW THE INVESTMENT BY THE COMPANY (C) THE ONLY MATERIAL FOUND WAS SHARE CERTIFICATE ISSUED BY THE COMPANY IN THE NAME OF SHAREHOLDERS (D) SOME OF THE SHARE CERTIFICATES WERE NOT EVEN OF THE COMPANY BUT WERE OF TRANSPOWER ENGG. LTD. (E) NO INQUIRY WAS MADE BY AO WITH THESE PERSONS T O CONFIRM HIS ACTION (F) THE REASONS RECORDED BY AO FOR ADDITION OF ` 26,88,300/- ARE NOT BASED ON ANY EVIDENCE OR FACTS. (G) THE ADDITION HAS BEEN MADE SIMPLY BECAUSE 2,68 ,330 SHARES OF RS.10/- EACH OF TRANSPOWER ENGG LIMITED & REPL ENGINEERING LIMITED WERE SEIZED. (H) INABILITY OF THE JOINT SECRETARY OF THE COMPAN Y TO EXPLAIN THE SOURCE OF THE SHAREHOLDERS & THAT TOO ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 69 OF 84 DURING THE COURSE OF SEARCH COULD NOT BE A GROUND F OR ADDITION IN THE HANDS OF THE COMPANY. (I) THE SHARES WERE THE PROPERTY OF THE SHAREHOLDER (J) SHARES WERE ISSUED OUTSIDE THE BLOCK PERIOD IN THE PAST. (K) THE ADDITION IS MADE FOR NOT EXPLAINING THE COR RECT FACTS. (L) NONE OF THE SHARES WERE IN THE NAME OF ASSESSE E (M) CIT(A) ERRED IN STATING THAT THE SHARES WERE A CQUIRED BY ASSESSEE COMPANY (N) AS ADMITTED BY THE CIT(A) THESE SHARES WERE PU RCHASED FROM THE OPEN MARKET BY 3RD PARTIES. HENCE CAN'T EXPLAIN SOURCE. 27.5 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE A RE UNABLE TO SUSTAIN THE ACTION OF AO. INSTEAD OF MAKING ADDITIO N IN THE HANDS OF SHAREHOLDER, IN THIS CASE ASSESSEE IS NOT SHAREHOLD ER, THE ADDITION WAS MADE WITHOUT ANY ENQUIRY. JUST BECAUSE THE SHAR E CERTIFICATES WERE SEIZED FROM THE COMPANY THE ADDITION CAN NOT B E MADE. ASSESSEE DISCHARGED HIS ONUS OF EXPLAINING THE OWNE RSHIP TO DIRECTOR AND REASON THEY ARE FOUND IN ASSESSEE POSSESSION. T HESE ARE NOT DISPROVED. WE ARE OF THE OPINION THE ADDITION CAN N OT BE MADE IN THE HANDS OF ASSESSEE. THE GROUND IS ALLOWED. 28. THE AO IS DIRECTED TO GIVE ADEQUATE OPPORTUN ITY TO THE ASSESSEE, CONSIDER THE SUBMISSIONS AFTER DUE EXAMIN ATION OF FACTS AND DECIDE THE ISSUES WHICH ARE RESTORED TO ASSESSE E. ASSESSEE IS DIRECTED TO COOPERATE IN THE PROCEEDINGS AND PLACE RELEVANT DETAILS/ DOCUMENTS FOR PROPER EXAMINATION. IN CASE OF NON CO OPERATION AO IS FREE TO TAKE ANY ADVERSE VIEW ON THE MATTERS. MANY OTHER CASE LAW WERE ALSO REFERRED IN THE SUBMISSIONS. WE HAVE CONS IDERED THEM BUT COULD NOT EXTRACT THEM FOR THE SAKE OF BREVITY. ASS ESSEE AND AO ARE DIRECTED TO KEEP THE PRINCIPLES OF LAW AND PROVISIO NS OF THE ACT IN DECIDING THE ISSUES RESTORED TO THE FILE OF AO FOR FRESH CONSIDERATION. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 70 OF 84 WITH THESE OBSERVATIONS AND DIRECTIONS, THE APPEAL IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. ITSS NO.162/MUM/2005 29. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN HOLDING IN PARA 45 OF HIS ORDER THAT THE PROFITS OFFERED BY ASSESSEE ON SALE AND LEASE BACK OF NON GENUINE ASSETS OF ` .10,29,93,553 FOR THE AY 1996-97 AND ` .11,65,11,868 FOR THE AY 1997- 98 IN THE REGULAR ASSESSMENTS SHOULD NOT FORM A PAR T OF THE UNDISCLOSED INCOME OF THE BLOCK PERIOD, WITH OUT APPRECIATING THE FACTS OF THE CASE. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 55 OF HIS ORDER I N DELETING THE ADDITION OF ` .27 CRORES, BEING THE INVESTMENT MADE BY OXCAMB INVESTMENT LTD BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF RULE 46A OF THE I.T. RULES, 1962 WITHO UT APPRECIATING THE FACTS OF THE CASE. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PAA 56 OF HIS ORDER IN DELETING THE ADDITION OF ` .20 LACS, BEING THE INVESTMENT MADE BY KAMALKANT CHHOTALAL EXPORTERS P LTD BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF RULE 46A OF THE I.T. RULES 1962 WITHOU T APPRECIATING THE FACTS OF THE CASE. 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 71 OF HIS ORDER I N DELETING THE ADDITION OF ` .8,94,60,000 BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF R ULE 46A OF THE I.T. RULES, 1962 WITHOUT APPRECIATING TH E FACTS OF THE CASE. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 73 OF HIS ORDER I N DELETING THE ADDITION OF ` .13,46,25,200 ON THE GROUND THAT THERE WAS NO INDICATION THAT ASSESSEES INCOME HAS BEEN DIVERTED FOR THE PURCHASE OF SHARES, WITHO UT APPRECIATING THE FACTS OF THE CASE. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN 75 OF HIS ORDER IN DEL ETING THE ADDITION OF ` .1,82,01,041 WITHOUT APPRECIATING THE FACTS OF THE CASE. 7) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 77 OF HIS ORDER I N DELETING THE ADDITION OF ` .6,30,09,101 WITHOUT ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 71 OF 84 APPRECIATING THE FACTS OF THE CASE. 8) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 79 OF HIS ORDER I N DELETING THE ADDITION OF ` .17,40,900 BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF R ULE 46A OF THE I.T. RULES, 1962 WITHOUT APPRECIATING TH E FACTS OF THE CASE. 9) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A) ERRED IN PARA 81 OF HIS ORDER I N DELETING THE ADDITION OF ` .30 LACS BEING ADVANCE FROM BHARAT VIJAY MILLS BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF THE RULE 46A OF THE I .T RULES 1962 WITHOUT APPRECIATING THE FACTS OF THE CA SE. 10) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN PARA 94 OF HIS ORD ER IN DELETING THE ADDITION OF ` .61 LACS, BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF R ULE 46A OF THE I.T. RULES, 1962 WITHOUT APPRECIATING TH E FACTS OF THE CASE. 11) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN PARA 96 OF HIS ORD ER IN DELETING PAYMENT OF ` .18 LACS, BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF RULE 46A OF THE I.T. RULES, 1962 WITHOUT APPRECIATING THE FACTS OF THE CASE. 12) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN PARA 101 OF HIS OR DER IN DELETING THE ADDITION OF ` .2,36,05,000 BY ADMITTING ADDITIONAL EVIDENCE FROM ASSESSEE IN VIOLATION OF R ULE 46A OF THE I.T.RULES 1962 WITHOUT APPRECIATING THE FACTS OF THE CASE. 13) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN PARA 107 OF HIS OR DER IN DELETING THE ADDITION OF ` .19.50 CRORES WITHOUT APPRECIATING THE FACTS OF THE CASE . 29.1 AS CAN BE SEEN FROM THE GROUNDS RAISED THE GRI EVANCE OF REVENUE IS MAINLY ON ADMISSION OF ADDITIONAL EVIDEN CE BY LD. CIT(A). AS THE ORDER WAS PASSED EX PARTE ON THE REASON THAT ASSESSEE DID NOT COOPERATE IN THE PROCEEDINGS, AO M ADE VARIOUS ADDITION ON THE BASIS OF SEIZED DOCUMENTS IN THE AB SENCE OF EXPLANATION FROM ASSESSEE. BEFORE THE LD CIT(A) WHI LE CONTESTING THE ISSUES ON PRINCIPLE OF NATURAL JUSTICE, ASSESSE E FILED ADDITIONAL ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 72 OF 84 EVIDENCE SUPPORTING THE CLAIMS AND CONTENTIONS. THE SE ADDITIONAL EVIDENCE WAS REFERRED TO AO AND MANY REPORTS WERE O BTAINED IN THE COURSE OF PROCEEDINGS BEFORE CIT(A). AFTER CONS IDERING THE OBJECTIONS AND REPORTS OF AO, LD CIT(A) VIDE PARA 1 6 AND 17 OF HIS ORDER UPHELD THE E X PARTE ORDER WHILE HOLDING THAT ASSESSEE CONTENTIONS ON NOT GIVING REASONABLE OPPORTUNITY WA S NOT CORRECT. HOWEVER, VIDE PARA 18 OF HIS ORDER BY GIVING DETAIL ED REASONS AND FOLLOWING THE PRINCIPLES LAID BY HONBLE BOMBAY HIG H COURT IN THE CASE OF PRABHAVATI S SHAH 231 ITR 1 ADMITTED THE AD DITIONAL EVIDENCE AS IT WAS CONSIDERED APPROPRIATE TO DETERM INE THE UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT PROCEEDI NGS. THERE IS NO VIOLATION OF RULE 46A AS CONTENDED BY REVENUE IN EACH OF ITS GROUND. FOR THAT REASON ALONE REVENUE GROUNDS ARE N OT MAINTAINABLE. HOWEVER FOR THE SAKE OF RECORD, WE DI SCUSS THE GROUNDS ON MERITS ALSO AS UNDER. 30. GROUND NO.1 PERTAINS TO PROFITS ON SALE AND LEASE BACK FOR AYS 1996-97 ( ` .10,29,93,553) AND FOR AY 1997-98 ( ` .11,65,11,868). THIS ISSUE IS INTER LINKED TO THE S ALE AND LEASE TRANSACTION UNDERTAKEN BY THE ASSESSEE. AO DID NOT CONSIDER THE PROFITS EARNED ON THESE TRANSACTIONS TO BE BOGUS AS CONTENTED BY ASSESSEE. 30.1 BEFORE THE CIT (A) IT WAS SUBMITTED THAT THE COMPANY BOOKED THE PROFIT ON THE SALE OF PROPERTY (NON GENU INE) ASSET TO THE FINANCIAL INSTITUTION WHICH RESULTED IN PAPER P ROFIT AND WAS CONSIDERED FOR DETERMINING THE PROFIT FOR THE YEAR. THE PROFIT SO DETERMINED BEING PAPER PROFIT WAS TO BE REMOVED FRO M THE PROFIT. 30.2 IT WAS HELD BY THE CIT (A) THAT THE SALE AND L EASE BACK ARRANGEMENTS WERE FOUND TO BE NON GENUINE AND IN RE SPECT OF NON EXISTENT ASSETS IN THE COURSE OF SEARCH PROCEEDINGS . THE PROFITS ON ACCOUNT OF THE SAID TRANSACTION IS ENTITLED FOR DED UCTION IN THE COMPUTATION OF THE UNDISCLOSED INCOME FOR THE RESPE CTIVE AYS FORMING PART OF THE BLOCK PERIOD. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 73 OF 84 30.3. CONSIDERING THE RIVAL CONTENTIONS AND THE NAT URE OF TRANSACTIONS UNDERTAKEN AND CONSISTENT WITH THE STA ND TAKEN ON THESE TRANSACTIONS WE SEE NO REASON TO INTERFERE WI TH THE ORDER OF CIT(A). SUCH PROFITS ARE TO BE EXCLUDED AND THE QUA NTUM OF ADDITION ON ACCOUNT OF BOGUS LEASE RENT AND DEPRECI ATION HAS TO BE REDUCED BY THE BOGUS PROFITS. THE GROUND IS REJE CTED. 31. GROUND NO.2 PERTAINS TO INVESTMENT IN SHARES AND FIXED ASSETS OF OXCAMB INVEST (P) LTD FOR AY 1996-97 AMOU NTING TO ` .27,00,00,000. 31.1 IT WAS HELD BY AO THAT OXCAMB INVESTMENT LTD ( OIL) WAS A FOREIGN COMPANY AND OIL WAS A BENAMI CONCERN OF ASS ESSEE. INVESTMENT IN SHARES OF REPL BY OIL WAS TREATED AS UNDISCLOSED INCOME. AO HOWEVER DID NOT MAKE ANY ADDITION ON THE REASON THAT LARGE AMOUNT OF CASH WAS WITHDRAWN FROM THE AC COUNT OF M/S UNIVERSAL MOULDERS AND FABRICATORS AS WELL AS C ERTAIN AVON GROUP COMPANIES AND THE FUNDS SO WITHDRAWN HAVE BEE N REMITTED ABROAD AND BROUGHT BACK IN THE NAME OF OXCAMB INTER NATIONAL LTD. INVESTMENT IN FIXED ASSETS AND OTHER INVESTMEN TS IN THE FINAL ACCOUNTS OF OIL I.E. ` .27.00 CRORES (USD 67,57,429) WAS TREATED AS UNDISCLOSED INCOME OF ASSESSEE REMITTED OUT OF I NDIA THROUGH ILLEGAL CHANNELS. SINCE A PART OF THE SAID FUND HAS BEEN LATER ON UTILIZED IN ACQUIRING THE SHARES OF REPL , NO SEPAR ATE ADDITION OF ` .21.00 CRORES WAS CONSIDERED NECESSARY. 31.2 BEFORE THE CIT (A) IT WAS SUBMITTED THAT OIL, A COMPANY INCORPORATED IN MAURITIUS ON 01.03.1995 AND HAD OBT AINED A PERMISSION FROM RBI FOR INVESTING IN SHARES OF REPL WHICH WAS GRANTED BY RBI. THE INVESTMENT WAS MADE BY THE SAID OIL OUT OF BORROWINGS FROM TAIB BANK, BAHRAIN. THE SOURCES OF FUND THEREFORE, ARE BEYOND DOUBT. BALANCE SHEET AS ON 31 .03.1996 OF OIL CONFIRMS THE BORROWING FROM TAIB BANK AND THE CORRESPONDING INVESTMENT IN REPL. OIL WAS NOT IN PO SSESSION OF ANY FUNDS AND HAD NOT REROUTED THE FUNDS REMITTED B Y REPL. NO ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 74 OF 84 FUNDS WERE TRANSFERRED BY OIL FROM ENGLISH TRUST AN D OIL IS NOT A BENAMI CONCERN OF REPL. 31.3 IT WAS HELD BY THE CIT (A) THAT THE DOCUMENTAR Y EVIDENCE AVAILABLE WITH THE DEPARTMENT THAT WAS FOUND AND SE IZED AS PART OF THE INCRIMINATING DOCUMENTS ITSELF SHOWS THAT FO R THE PURPOSE OF MAKING INVESTMENT, THE OIL HAD TAKEN LOAN FROM T AIB BANK, BAHRAIN. THE COMPANY HAD OBTAINED PRIOR PERMISSION FROM RBI BEFORE MAKING INVESTMENT IN THE SHARES OF REPL. THE SAID BANK FOR THE PURPOSE OF MAKING THE INVESTMENT HAD GRANTE D OIL A SHORT TERM LOAN. OIL FAILED TO MEET THE DEADLINE IN SO FA R AS REPAYMENT OF LOAN IS CONCERNED. DUE TO WHICH BANK HAD INITIAT ED CERTAIN PROCEEDINGS AS IS EVIDENT FROM THE LOOSE PAPERS FOU ND IN SEARCH PROCEEDINGS. THUS INVESTMENT MADE BY OIL WITH THE A PPROVAL OF RBI IS REQUIRED TO BE HELD AS GENUINE INVESTMENT AN D ADDITION OF ` .27.00 CRORES CANNOT BE SUSTAINED. 31.4 AFTER CONSIDERING RIVAL CONTENTIONS, WE AFF IRM THE ORDER OF CIT(A) AS THE LEARNED CIT (A) HAS VERIFIED THE LOOS E PAPERS AND THE FACTS HAS BEEN VERIFIED. OIL ACQUIRED SHARES UNDER RBI APPROVAL FROM PERSONS OTHER THAN COMPANY. SIMILAR ADDITION I N HOMI R. PATEL DELETED BY ITAT IN APPEAL NO.IT(SS)A 645/MUM/ 2004 VIDE PAGE 25 TO 27. OIL, A COMPANY INCORPORATED IN MAURI TIUS ON 01.03.1995 HAD OBTAINED A PERMISSION FROM RBI FOR P URCHASE OF SHARES FROM SOME OF THE SHAREHOLDERS OF THE COMPANY REPL WHICH WAS GRANTED BY RBI. THE INVESTMENT WAS MADE B Y THE SAID OIL OUT OF BORROWINGS FROM TAIB BANK, BAHRAIN. THER EFORE QUESTION OF TREATING THE INVESTMENT AS ASSESSEE INC OME THAT TOO AS UNDISCLOSED DOES NOT ARISE. THE GROUND IS REJECT ED. 32. GROUND NO.3 PERTAINS TO DEPOSIT FROM KAMALKANT CHOTALAL FOR AY 1996-97 FOR ` .20,00,000. AO ASKED ASSESSEE TO FURNISH COPY OF ACCOUNTS OF M/S KAMALKANT CHOTALAL EXPORTERS PVT. L TD AND AS ASSESSEE FAILED TO PROVIDE NECESSARY EVIDENCE, THE AMOUNT WAS TREATED AS INCOME. ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 75 OF 84 32.1 IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE SAID LOOSE PAPERS REPRESENT AN ICD TAKEN FROM KAMALKANT CHOTALAL EXPO RTERS LTD. THE PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUE, INTER EST WAS ALSO DULY PAID BY ACCOUNT PAYEE CHEQUE AND TAX WAS DEDUC TED AT SOURCE. LOAN WAS TAKEN AGAINST SECURITY BY PLEDGING THE EQUITY SHARES. A CRIMINAL CASE HAD FILED BY THE COMPANY UN DER SECTION 138 OF THE NEGOTIABLE INSTRUMENTS ACT AGAINST REPL FOR RECOVERY. 32.2 ON THESE FACTS, IT WAS HELD BY THE CIT (A) T HAT THE DOCUMENTARY EVIDENCE AVAILABLE WHICH HAS BEEN TAKEN AS THE BASIS BY AO FOR MAKING ADDITION SHOW THAT THE SAID CONCER N HAD ADVANCED THE AMOUNT AND ON ACCOUNT OF FAILURE OF AS SESSEE TO REPAY IT HAD INITIATED THE PROCEEDINGS UNDER THE NEGOTIAB LE INSTRUMENTS ACT. THERE WAS NO BASIS FOR AO TO HOLD THAT THE AMO UNT REPRESENTED TO UNDISCLOSED INCOME THE ASSESSEE COMPANY. 32.3 AFTER CONSIDERING THE RIVAL CONTENTIONS WE DO NOT SEE ANY REASON TO DISTURB THE FINDING OF CIT(A) AS HE EXAMI NED THE FACTS AND DELETED THE ADDITION RIGHTLY. THE GROUND IS REJECTE D. 33. GROUND NO.4 PERTAINS TO PAYMENT TO PEIL AND NILA FOR AY 1997-98 OF ` .8,94,60,000. AO ASKED ASSESSEE TO EXPLAIN THE GENUINENESS OF PAYMENTS AND THE PURPOSE WITH EVIDEN CE TO PEIL AND NILA AND AS ASSESSEE FAILED TO PRODUCE NECESSAR Y EVIDENCE, TREATED AS INCOME. 33.1 BEFORE THE CIT (A) IT WAS HELD THAT LOOSE P APER NO.1 WHICH WAS A LETTER FROM PEIL CONFIRMING THE RECEIPT OF PA YMENTS FROM AVON GLOBAL PVT LTD/AVON PLASTICS UNDER VARIOUS CHE QUES AGGREGATING 47 IN ALL WERE FOUND. LOOSE PAPER NO.2 IS A LETTER DATED 25.12.1996 FROM PEIL ADDRESSED TO AVON PLASTICS PVT LTD ACKNOWLEDGING THE RECEIPT OF A CHEQUE OF ` .40.00 LAKHS DRAWN ON BANK OF MADURA LTD, WHEREAS LOOSE PAPER NOS. 10 TO 24 ARE PHOTOCOPIES OF ABOVE MENTIONED CHEQUES AGGREGATING 58 IN NOS. M/S AVON GLOBAL PVT. LTD/AVON PLASTICS LTD HAD ENTE RED INTO AGREEMENTS FOR PURCHASE OF WIND TURBINE GENERATORS ON HIGH SEAS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 76 OF 84 FROM M/S NILA AND PEIL. PAYMENTS WERE MADE IN PURSU ANCE OF THE ABOVE AGREEMENTS. COPIES OF THESE AGREEMENTS AS ALS O INVOICES OF THESE COMPANIES WERE IN FACT SEIZED BY THE SEARCH P ARTY WHICH MATERIAL WAS ALWAYS IN POSSESSION OF AO. IT WAS ALS O SUBMITTED BEFORE THE CIT (A) THAT NONE OF THE TRANSACTIONS RE LATE TO THE COMPANY REPL NOR DO THEY INDICATE ANY INVOLVEMENT O F REPL. 32.2 IT WAS HELD BY THE LEARNED CIT (A) THAT THE AC T ITSELF PROVIDES FOR TAXATION OF ANY UNDISCLOSED INCOME IN THE HANDS OF ANY PERSON OTHER THAN IN WHOSE NAME AUTHORIZATION OF SEARCH HA S NOT BEEN ISSUED. FURTHER AS AR PRODUCED CONFIRMATION LETTER FROM THE SAID COMPANIES THAT THE PAYMENTS ARE DULY RECORDED IN TH E BOOKS OF THE RESPECTIVE COMPANIES, HE DELETED THE SAME. 33.3 BEFORE US RESPECTIVE CONTENTIONS WERE REITE RATED. SINCE IT IS ALSO A FACTUAL ISSUE WHICH WAS EXAMINED BY LD.CIT(A ), WE DO NOT SEE ANY REASON TO ACCEPT REVENUE GROUND AND ACCORDI NGLY REJECTED. 34. GROUND NO.5 PERTAINS TO ALLEGED REMITTANCES FROM OXCAMB INVESTMENT LIMITED FOR AY 1997-98 OF ` .13,46,25,200. IT WAS HELD BY AO THAT THE AMOUNT RECEIVED FROM M/S OXCAMB INVE STMENT LIMITED WAS UTILIZED FOR THE BENEFITS OF THE ASSESS EE COMPANY, WHICH INDICATED THAT M/S OXCAMB IS BENAMI CONCERN OF ASSE SSEE AND AO TREATED THE REMITTANCE AS UNDISCLOSED INCOME OF THE COMPANY. BEFORE THE LEARNED CIT (A) IT WAS SUBMITTED THAT LO OSE PAPER NO.42 IS AN UNDATED WORKING OF DETAILS OF RECEIPTS FROM M /S OXCAMB INVESTMENT LTD WHICH IS REGISTERED AND INCORPORATED IN MAURITIUS UNDER PROPER AND NECESSARY APPROVALS FROM RBI AND H AD PURCHASED SHARES OF REPL ENGG NOT DIRECTLY BY SUBSCRIPTION, B UT BY PURCHASE FROM THE THEN EXISTING SHAREHOLDERS OF THE COMPANY. RECEIPT FROM OXCAMB IS BY VARIOUS SHAREHOLDERS OF REPL FOR TRANS FER OF SHARES TO THEM AND HAVE NO RELATIONSHIPS OF WHATSOEVER NATURE WITH REPL. THE SAID FUNDS WERE RECEIVED BY OXCAMB LTD FROM BOR ROWINGS MADE FROM TAIB BANK LTD BAHRAIN. IT WAS HELD BY THE LEA RNED CIT (A) THAT THERE IS NO INDICATION THAT THE REMITTANCES RECEIVE D FROM OXCAMB IS ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 77 OF 84 A DIVERSIFICATION OF ASSESSEES INCOME OR ITS CONFI RMED UTILISATION IS FOR THE BENEFIT OF ASSESSEE COMPANY. 34.1 WE DO NOT SEE ANY REASON TO MODIFY THE WELL REASONED ORDER OF CIT(A) AS THE LEARNED CIT (A) HAS VERIFIED THE L OOSE PAPERS AND DELETED ON FACTS. SHARES WERE NEVER ISSUED TO OXCAM B NOR ANY MONEY WAS RECEIVED BY REPL FROM OXCAMB. ADDITION OF RS.27 CRORES ALSO MADE ON THE SAME GROUNDS OF ALLEGED OF INVESTMENT BY OIL AS PER GROUND NO 2 WAS ALSO DELETED. FURTHER CO PY OF THE LOOSE PAPER IN FACT SEIZED BY THE SEARCH PARTY WHICH WAS MATERIAL FOR ADDITION WAS ALWAYS IN POSSESSION OF THE LD. A.O AN D THIS WAS CONSIDERED BY THE CIT(A). GROUND IS REJECTED. 35. GROUND NO.6 PERTAINS INTEREST COMPONENT FOR AY 1997-98 OF ` .1,82,01,041. AO HELD THAT A LOAN OF ` .12.00 CRORES WAS TAKEN FROM IFC UNDER EQUIPMENT CREDIT SCHEME FOR WHICH BO GUS INVOICES AMOUNTING TO ` .1164 LAKHS WERE PREPARED. SINCE THE LOAN AMOUNT DOES NOT SEEM TO HAVE BEEN UTILIZED FOR GENUINE PUR CHASE OF ASSETS AND THE FUNDS HAVE APPARENTLY BEEN DIVERTED FOR SOM E OTHER PURPOSES, THE INTEREST ACCRUED AT THE RATE OF 21.05 % FOR THE PERIOD 12.07.1996 TO 31.03.1997 AMOUNTING TO ` .1,82,01,041 IS DISALLOWED AS REVENUE EXPENSES WRONGLY CLAIMED. 35.1. BEFORE THE CIT (A) IT WAS SUBMITTED THAT TH E SAID LOOSE PAPER NO.14 IS UNSIGNED AND UNDATED AND AO WAS OF THE OPI NION THAT THE SAID LOAN OF ` .12.00 CRORES WAS NOT UTILIZED FOR THE PURPOSES OF BUSINESS AND THEREFORE, THE INTEREST THEREON OF ` .1,82,01,041 WAS DISALLOWED. THE SAID LOAN WAS DISBURSED ON13.07.199 6 AND WAS CARRYING INTEREST AT 26%. THE INTEREST FOR THE PERI OD UPTO 31.03.1997 WAS ` .1,39,77,806 WHICH WAS DEBITED TO THE PROFIT & LOSS A/C. THE SAID LOAN IN ANY CASE WAS USED FOR TH E PURPOSES OF BUSINESS FOR REPAYMENT TO VARIOUS CREDITORS OF THE COMPANY. THE INTEREST WAS DULY CONSIDERED IN REGULAR ASSESSMENT FOR AY 1997-98 AND WAS ALLOWED AS A DEDUCTION BY AO. FURTHER, DISA LLOWANCE OF A CLAIM OF INTEREST RECORDED IN REGULAR BOOKS OF ACCO UNT CANNOT BE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 78 OF 84 SUBJECT MATTER OF BLOCK ASSESSMENT. 35.2 IT WAS HELD BY THE CIT (A) THAT THERE IS NO THING TO INDICATE THAT THE DOCUMENTS REFLECT IN ANY MANNER ANY ELEMEN T OF PROFIT EMBEDDED THEREIN INTER ALIA INCLUDE IFCI LOAN OF' ` 12.00CRORES UNDER EQUIPMENT CREDIT SCHEME AND CERTAIN OTHER LOA N AND THEIR UTILISATION. WHILE THE LOAN IN ITSELF CANNOT BE THE SUBJECT MATTER OF ADDITION, THE INTEREST THEREOF HAS TO BE ALLOWED. T HEREFORE, ON THE BASIS OF THIS, THERE CANNOT BE ADDITION TO THE UNDI SCLOSED INCOME OF ASSESSEE COMPANY TO THE EXTENT OF ` 1,82,01,041. 35.3 BEFORE US ALSO ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (A). ALTERNATIVELY, THE SAI D AMOUNT HAS ALREADY BEEN INCLUDED IN THE DISALLOWANCE OF INTERE ST OFRS3.96 CRORES FOR A.Y. 1996-97 AND ` 8.32 CRORES FOR A.Y.1997-98 AS PER GROUND NO. 10 OF APPEAL NO. 152/MUM/2005. 35.4 THERE IS NO NEED TO DISTURB THE FINDING OF CIT(A). AS SUBMITTED THE INTEREST WAS OTHER WISE ALSO DISALLOW ED. SINCE THE ISSUE OF ALLOWING INTEREST WAS RESTORED TO AO IN AS SESSEE APPEAL, THIS ASPECT OF DOUBLE DISALLOWANCE CAN ALSO BE EXAMINED BY AO. THE GROUND IS HOWEVER TREATED AS REJECTED. 36. GROUND NO.7 PERTAINS TO INTEREST LIABILITY DISALLOWED AMOUNTING TO ` .6,30,09,101 FOR AY 1997-98. AO HELD THAT ASSESSEE WAS ASKED TO ESTABLISH THE GENUINENESS OF THE PURPO SES FOR WHICH THE LOANS WERE TAKEN AND SUBSEQUENT PAYMENT OF INTE REST OF ` .6,30,09,101 AND AS ASSESSEE FAILED TO PRODUCE NECE SSARY EVIDENCE, THE SAME WAS UNDISCLOSED INCOME. 36.1 IT WAS SUBMITTED BEFORE THE CIT (A) THAT MOST OF THE FUNDS HAVE BEEN RAISED IN THE YEARS PRECEDING THE CALEND AR YEAR 1996 AND THE INTEREST ON THE SAID LOANS HAS BEEN DULY ALLOWE D AS DEDUCTION ON THE FINDING AND SATISFACTION THAT THE FUNDS WERE US ED FOR THE PURPOSES OF BUSINESS. LOOSE PAPERS 15 & 16 NOWHERE REMOTELY INDICATES ANYTHING RELATING TO NON BUSINESS USE OR UNRECORDED TRANSACTION. THE SAID INTEREST WAS DULY CONSIDERED IN REGULAR ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 79 OF 84 ASSESSMENT FOR AY 1997-98 AND WAS ALLOWED AS A DEDU CTION. NO MATERIAL OF WHATSOEVER NATURE WAS BROUGHT ON RECORD BY AO TO SUPPORT HIS ALLEGATIONS. 36.2 IT WAS HELD BY THE LEARNED CIT (A) THAT THERE IS NO INDICATION FROM THE PERUSAL OF THE DOCUMENT THAT WAS TAKEN BY AO THAT THE UTILIZATION OF THESE LOANS IN ANY MANNER FOR NON BU SINESS PURPOSES. THEREFORE, ADDITION WAS HELD TO BE DELETED. 36.3 HERE ALSO WE DO NOT SEE ANY REASON TO CONSIDE R THE REVENUE GROUND. THERE IS NOTHING TO INDICATE THAT LOAN WAS NOT USED FOR THE PURPOSE OF BUSINESS. MORE OVER SIMILAR INTEREST WAS ALLOWED IN REGULAR ASSESSMENT. THEREFORE QUESTION OF DISALLOWI NG IN BLOCK ASSESSMENT DOES NOT ARISE. THE GROUND IS REJECTED. 37. GROUND NO.8 PERTAINS TO CONSULTANCY CHARGES OF ` .17,40,900. AO NOTICED THAT ASSESSEE FAILED TO PRODUCE NECESSAR Y EVIDENCE AND ON THAT REASON ADDED THE AMOUNT AS UNDISCLOSED INCO ME. BEFORE THE CIT (A) IT WAS SUBMITTED THAT THE SAID LOOSE PAPER WAS A BILL RAISED BY ASIS OVERSEAS PVT LTD FOR RENDERING PROFESSIONAL SERVICES FOR AN AMOUNT OF ` .5,69,400 ONLY. THE SAID BILL WAS IN RESPECT OF PRO CESSING AND PROCURING THE ADVANCE LICENSE FOR THE COMPANY O F THE VALUE OF ` .5,80,30,000. ASIS HAD RENDERED THEIR PROFESSIONAL SERVICES FOR A REMUNERATION OF 3% OF VALUE OF LICENSE WHICH CAME T O ` 17,40,900. THE SAID EXPENDITURE HAD BEEN CLAIMED AS DEDUCTION IN COMPUTING THE TOTAL INCOME FOR A.Y. 1996-97 AND A.Y. 1997-98 WHICH EXPENDITURE HAS BEEN ALLOWED BY A.O. THE SAID LOOSE PAPER CARRIED THE IDENTIFICATION AND ADDRESS OF PAYEE AS ALSO THE TELEPHONE NUMBERS AND IN CASE OF DOUBT THE A.O. SHOULD HAVE EXAMINED THE PAYEE AND VERIFIED THE CORRECTNESS. THE SAID PAYEE WAS ASSESSED TO TAX AND HAS BEEN TAXED IN RESPECT OF THE RECEIPT OF PROFESSIONAL FEES. 37.1. THE LEARNED CIT (A) HELD THAT IT IS EVIDEN T THAT CERTAIN SERVICES WERE RENDERED BY ASIS OVERSEAS PVT. LTD FO R PROCURING OF ADVANCE LICENSE FOR WHICH THE PAYMENT HAS BEEN MADE . THERE IS NOTHING IN THE INCRIMINATING DOCUMENT TO SHOW THAT THE SERVICES ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 80 OF 84 HAVE NOT BEEN RENDERED WARRANTING THE DISALLOWANCE OF THE PAYMENT IN THE BLOCK ASSESSMENT PROCEEDING. 37.2 SINCE ISSUE WAS EXAMINED ON FACTS AND FINDI NGS OF CIT(A) ARE FOUND TO BASED ON DOCUMENTS SEIZED AND CLAIMS IN EA RLIER YEARS, WE REJECT THE GROUND RAISED BY REVENUE. 38. GROUND NO.9 PERTAINS TO RECEIPT FROM BHARAT VIJAY MILLS OF ` .30,00,000. AO OBSERVED THAT ASSESSEE FAILED TO PRO DUCE NECESSARY EVIDENCE ON THIS TRANSACTION AND TREATED AS INCOME IN BLOCK. 38.1 BEFORE THE CIT (A) IT WAS SUBMITTED THAT TH E REPL HAD AGREED TO SUPPLY WTG TO THE SAID SINTEX LTD UNDER THEIR OR DER DATED 1.10.1997. ACCORDING TO THE TERMS OF AGREEMENT THE SAID SINTEX HAD PAID AN ADVANCE OF ` .30.00 LAKHS. COPY OF THE LETTER AND ACCOUNTS OF THE SAID SINTEX AS ALSO THE COPY OF THE BANK STATEM ENT CONFIRMING THE RECEIPT AND DEPOSITS WERE PRODUCED. 38.2 IT WAS HELD BY THE CIT (A) THAT FROM THE PER USAL OF THE CHEQUE WHICH WAS FORMING PART OF THE INCRIMINATING DOCUMEN T, IT IS EVIDENT THAT M/S . BHARAT VIJAY MILLS IS A DIVISION OF M/S. SINTEX INDUSTRIES LTD., THEREFORE WHERE THE PAYMENT IS DUL Y ACCOUNTED FOR IN THE BANK STATEMENT FURNISHED, THERE IS NO BASIS FOR RETAINING ADDITION ON THIS ACCOUNT AS THE UNDISCLOSED INCOME OF ASSESSEE. 38.3 THIS ADDITION MADE BY AO WAS ALSO DEVOID OF ANY MERIT. THE LD.CIT(A) EXAMINED THE SEIZED MATERIAL AND RIGHTLY DELETED THE ADDITION. WE UPHOLD THE FINDING AND REJECT THE GROU ND. 39. GROUND NO.10 PERTAINS THE AMOUNTS RECEIVED FROM VARIOUS PERSONS AGGREGATING TO ` .61,00,000. 39.1 AO NOTICED THAT THE LOOSE PAPERS CONTAINED T HE FOLLOWING DETAILS: PRABHU & FD - ` .5.00 LAKHS JOSHI FD - ` .3.00 LAKHS + INTEREST AVON - ` .13.00 LAKHS CAS - ` .40.00 LAKHS 39.2 SHRI HOMI PATEL IN HIS STATEMENT ON OATH ST ATED THAT THESE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 81 OF 84 ARE PAYMENT LIABILITIES, BUT AS ASSESSEE FAILED TO PRODUCE NECESSARY EVIDENCE, AO MADE THE ADDITION. 39.3 BEFORE THE CIT (A) IT WAS HELD THAT THE COMP ANY HAD RAISED VARIOUS ICDS FROM OTHER COMPANIES AND INDIVIDUALS. SUCH DEPOSITS HAVE BEEN DULY ACCOUNTED FOR BY THE ASSESSEE COMPAN Y IN ITS REGULAR BOOKS OF ACCOUNT. COPIES OF ACCOUNTS WERE FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS. SINCE THE ENTRIES WERE RECO RDED, THERE IS NO CASE FOR MAKING ADDITION ON THIS ACCOUNT TO THE UND ISCLOSED INCOME. THE LEARNED CIT (A) HELD THAT THERE IS A MERIT IN T HE CLAIM CONSIDERING THE EVIDENCES PRODUCED. IN THE CIRCUMST ANCES, THERE REMAINS NO BASIS FOR SUSTAINING THE ADDITION. WE UP HOLD THE ORDER AND REJECT THE GROUND. 40. GROUND NO.11 PERTAINS TO PAYMENT TO RUNNERS CORPORATION OF ` .18,00,000. AO OBSERVED THAT ASSESSEE FAILED TO PRO DUCE NECESSARY EVIDENCE AND ON THAT REASON MADE THE ADDITION. BEF ORE THE CIT (A) IT WAS SUBMITTED THAT AGAINST THE AMOUNT RECEIVED FROM TIME TO TIME, AN AMOUNT OF ` .18.00 LAKHS WAS PAID BY CHEQUE TO THEM VIDE NO.111390 DATED 31.7.1997 DRAWN ON BANK OF MADURA. COPY OF THE ACCOUNT SUBMITTED WOULD CLEARLY CONFIRM THIS PAYMEN T TO THE SAID M/S RUNNERS CORPORATION. THE LEARNED CIT (A) HELD THAT APPARENTLY THE PAYMENT MADE WAS DULY ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNT OF THE ASSESSEE COMPANY. THEREFORE, THE ADD ITION MADE TO THE UNDISCLOSED INCOME ON THIS ACCOUNT CANNOT BE SU STAINED AND DELETED THE ADDITION. 40.1 AFTER PERUSING THE RECORD AND SUBMISSIONS W E UPHOLD THE ORDER OF CIT(A) AS IT IS BASED ON FACTS AND CORRECT APPRECIATION OF THE DOCUMENTS. GROUND IS REJECTED. 41. GROUND NO.12 PERTAINS TO DIFFERENCE OF STOCK OF ` .2,36,05,000 BASED ON SEIZED DOCUMENTS. AO HELD THAT THE TYPED F IGURES OF THE STOCK VALUE HAS BEEN STRUCK OFF AND DIFFERENT VALUE HAS BEEN MENTIONED. DIFFERENCE IN STOCKS WERE FOUND BETWEEN WHAT WAS DECLARED FOR CASH CREDIT PURPOSE AND THE ACTUAL STO CK. AS ASSESSEE ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 82 OF 84 FAILED TO PRODUCE NECESSARY EVIDENCE WHEN ASKED BY AO, HE TREATED THE DIFFERENCE AS UNDISCLOSED INCOME. BEFORE THE CI T (A) IT WAS STATED THAT A STATEMENT DULY TYPED FOR OCTOBER, 199 7 WAS FURNISHED TO THE BANK INDICATING THE VALUE OF THE STOCK OF ` .3339.41 LAKHS WHICH WAS DULY ACKNOWLEDGED BY THE BANK WHICH DOES NOT CONTAIN ANY HAND WRITTEN CORRECTIONS UNLIKE THE LOOSE PAPER S. SUBSEQUENTLY WHEN IT CAME TO FURNISHING THE STATEMENT OF STOCK T ALLY FOR NOV. 1997, THE STATEMENT FOR OCTOBER, 1997 WAS TAKEN AS THE BASIS FOR PREPARING NOVEMBER 1997 TALLY. IN DOING SO, THE TYP EWRITTEN FIGURES WERE STRUCK OFF BY HAND AND THE FIGURES FOR NOV.199 7 WERE PUT BY HAND. A COMPARISON OF THE TWO WILL VERY CLEARLY EXP LAIN THAT THERE WAS NO DIFFERENCE IN THE STOCK TALLY. THESE FIGURES REPRESENTED VALUE OF STOCKS FOR TWO DIFFERENT MONTHS. AO HIMSELF HAS ACCEPTED AND ACKNOWLEDGED THE POSITION WHEREIN THE STOCK TALLY F OR TWO DIFFERENT MONTHS WERE BOUND TO BE DIFFERENT. HENCE IT WAS NO W KNOWN WHY IN THE FINAL ANALYSIS HE TREATED THE LOOSE PAPERS AS R EPRESENTING UNDISCLOSED INCOME. 41.1 THE LEARNED CIT (A) CONSIDERED THE SUBMISS IONS OF THE AR AND CONSIDERED THAT THERE WAS NO BASIS FOR RETAININ G THE ADDITIONS MADE BY AO. HE DELETED THE SAME. AFTER PERUSING THE RECORD AND SUBMISSIONS, WE UPHOLD THE ORDER OF CIT(A) AS IT IS BASED ON FACTS AND CORRECT APPRECIATION OF THE DOCUMENTS. GROUND I S REJECTED. 42. GROUND NO.13 PERTAINS TO THE INVESTMENT IN IMMOVABLE PROPERTY. AO HELD THAT ASSESSEE WAS ASKED TO FURNIS H COMPLETE DETAILS IN RESPONSE TO SHOW CAUSE NOTICE DATED 28.0 9.1999 FAILING WHICH IT WAS PROPOSED TO HOLD THAT THESE PROPERTIES WERE IN FACT OWNED BY ASSESSEE IN DIFFERENT NAMES. SOME OF THE P ROPERTIES ARE NOT PRIMA FACIE APPEARING IN ASSESSEES BOOKS OF AC COUNT. ALL SUCH PROPERTIES WERE HELD TO BE BENAMI PROPERTIES OF ASS ESSEE AS NO EXPLANATION REGARDING THE IDENTITY OF THE PARTY CON CERNED AND THE SOURCE OF ACQUISITION HAS BEEN FURNISHED BY ASSESSE E. INDIVIDUAL COST OF ACQUISITION OF EACH PROPERTY WAS NOT MADE A VAILABLE BY ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 83 OF 84 ASSESSEE. IN THE ABSENCE OF ANY EXPLANATION, AO ADD ED AN AMOUNT OF ` .20.00 CRORES AS UNDISCLOSED PART OF THE INVESTMENT IN ACQUIRING THE PROPERTIES ON ESTIMATED BASIS. 42.1 BEFORE THE CIT (A) IT WAS SUBMITTED THAT TH E SAID PROPERTIES ARE THE PROPERTIES BELONGING TO THE COMPANY REPL OR ITS RELATED CONCERNS. THE SAID PROPERTIES ARE ACQUIRED THROUGH THE DUE PROCESS OF LAW UNDER VALIDLY EXECUTED AGREEMENTS AND MOST O F ACQUISITION OF SUCH PROPERTIES IN RESPECT OF THEM WERE MADE BY ACC OUNT PAYEE CHEQUES WHICH PAYMENTS ARE DULY ACCOUNTED FOR IN TH E REGULAR BOOKS OF ACCOUNT OF RESPECTIVE CONCERN. SOME OF THE PROPERTIES ARE THE TENATED PROPERTIES WHERE TENANCY RIGHTS ARE ACQ UIRED YEARS BACK BEFORE 1987 FOR WHICH THERE IS NO COST OF ACQUISITI ON. THESE PROPERTIES ARE DULY REFLECTED IN THE BALANCE SHEET FILED WITH THE RETURN OF INCOME REGULARLY. AS FAR AS COLUMN OF AP PROXIMATE PRICE IS CONCERNED IT WAS SUBMITTED THAT THE ESTIMATE WAS MA DE OF REALIZABLE VALUE OF PROPERTY IN A ROUGH ATTEMPT TO ASCERTAIN T HE NET WORTH OF THE GROUP. NONE OF THE PROPERTIES ARE BENAMI PROPER TIES OF THE COMPANY REPL AND PROPERTIES WHICH BELONG TO THE REL ATED CONCERNS ARE THE PROPERTIES WHICH ARE ACQUIRED BY THEM OUT O F THEIR FUNDS. 42.2 IT WAS HELD BY THE LEARNED CIT (A) THAT ASSE SSEES SUBMISSION WAS FORWARDED TO AO AND AO FURNISHED REPORT DATED 1 8.06.2004 AND FROM THE PERUSAL OF THE SAID REPORT, IT CAN BE CONC LUDED THAT IN RESPECT OF CERTAIN PROPERTIES THERE IS NO DISPUTE I N OWNERSHIP AND HENCE NO ADDITION ON ACCOUNT OF THE ALLEGED UNACCOU NTED INVESTMENT IN THE ACQUISITION OF SAID PROPERTIES CAN BE RETAIN ED. IN REGARD TO THE REMAINING PROPERTIES, THE LEARNED CIT (A) OBSERVED THAT EXCEPT FOR THE PROPERTY BEING W-163 MIDC DOMBIVALI THE OWNERSH IP OF REMAINING PROPERTIES STANDS ESTABLISHED AND NO ADDI TION ON THIS ACCOUNT CAN BE SUSTAINED. CONSEQUENTLY OUT OF ` .20.00 CRORES ADDED TO THE UNDISCLOSED INCOME, THE ADDITION OF ` .50.00 LAKHS IS RETAINED AND BALANCE OF ` .19.50 CRORES WAS DELETED. 42.3 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE UP HOLD THE ORDER OF ITSS NOS.152 & 162 OF 2005 HEAT SHRINK TECH LTD & R EPL ENGG. LTD MUMBAI PAGE 84 OF 84 CIT(A). IN FACT, AO HIMSELF VERIFIED AND ACCEPTED T HE PROPERTIES AS ACCOUNTED FOR EITHER IN ASSESSEE BOOKS OR ITS RELAT ED CONCERNS. LD CIT(A) GAVE DETAILED REASONS WHILE DELETING ALL BUT ONE WHICH WAS SUSTAINED BY HIM. THERE IS NO REASON TO CONTEST BY THE REVENUE THIS ISSUE ON MERITS. GROUND REJECTED. 42. FOR THE REASONS STATED ABOVE, REVENUE APPEAL IS DISMISSED. 43. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2013 SD/- SD/- ( AMIT SHUKLA ) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 10 TH MAY, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI