Promain Ltd., New Delhi V. DCIT, Special Range- 23, New Delhi

ITSSA 325/DEL/1997

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3540 (ITAT-DELHI)
• Duration Of Justice: 19 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 19-12-1997
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL A G GARWAL SHRI RAVI PRA
• Keywords: Gift; Depreciation; Search and seizure; Document seized; Speculation loss; Valuation report; Block assessment; Retraction; Documents seized; Unabsorbed depreciation
• Section: 69C; 143(3); 133A; 147; 131; 132; 144; 139

Judgement Text

// FIT FOR PUBLICATION// A.M. J.M. IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES B : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER IT(SS)A.NO.325/DEL./1997 BLOCK PERIOD 10.10.1985 TO 21.11.1996 M/S. PROMAIN LIMITED KANCHANJUNGA, 7 TH FLOOR, 18, BARAKHAMBA ROAD NEW DELHI. GIR NO.P-6 VS. THE DCIT, SPL. RANGE-23 NEW DELHI. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SALIL A G GARWAL, ADVOCATE SHRI RAVI PRATAP MALL, ADVOCATE FOR REVENUE : MS. RACHNA SINGH, CIR-D.R. DATE OF HEARING : 15.11.2017 DATE OF PRONOUNCEMENT : 07.12.2017 ORDER PER BHAVNESH SAINI, J.M. THE FIRST APPEAL BY THE ASSESSEE HAS BEEN DIRECTE D AGAINST THE BLOCK ASSESSMENT ORDER DATED 28 TH NOVEMBER, 1997, PASSED BY DCIT, SPECIAL RANGE-23, NEW DELHI, FOR TH E ABOVE BLOCK PERIOD. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT PURSUAN T TO THE WARRANT OF AUTHORIZATION, SEARCH UNDER SECTION 132 OF THE ACT, 2 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. WAS CONDUCTED AT THE OFFICIAL PREMISES OF THE ASSES SEE-COMPANY ON 21 ST NOVEMBER, 1996. SEARCH WAS CONDUCTED IN THE PREMIS ES OF THE ASSESSEE-COMPANY AS A SEQUEL TO THE SEARCH C ONDUCTED IN HDC GROUP OF CASES AT DELHI, CALCUTTA, BOMBAY AND S URAT. THE ASSESSEE-COMPANY IS AN INVESTMENT COMPANY AND HAS I NCOME FROM DIVIDEND, INTEREST AND FROM SALE AND PURCHASE OF SHARES. 2.1. NOTICE UNDER SECTION 158BC WAS ISSUED AND THE ASSESSEE-COMPANY FILED RETURN OF INCOME DECLARING N IL UNDISCLOSED INCOME. THE A.O. ISSUED QUESTIONNAIRE A ND CALLED FOR EXPLANATION OF THE ASSESSEE-COMPANY. THE SEARCH AND SUBSEQUENT ENQUIRIES CONDUCTED FOLLOWING THE SEARCH OPERATION REVEAL THAT ASSESSEE-COMPANY BEING AN INVESTMENT CO MPANY AND CLOSELY LINKED WITH THE MODY GROUP OF COMPANIES , HAS BEEN FACILITATING THE PLOUGHING BACK OF UNDISCLOSED INCO ME OF THE FLAGSHIP COMPANY OF MODY GROUP NAMELY M/S. HINDUSTA N DEVELOPMENT CORPORATION (HDC), IN THE GARB OF A S PECULATION PROFIT THROUGH AN ARRANGED SPECULATIVE SHARE TRANSA CTIONS ROUTED THROUGH A RELIABLE STOCK BROKER OF THE FLAGS HIP COMPANY. GENERALLY, THIS SPECULATION PROFIT IS SET-OFF AGAIN ST THE INTEREST 3 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. OUTGO, MAINLY TO THE FLAGSHIP COMPANY. SUBSEQUENTLY , IF THERE REMAINS A HUGE PROFIT, IT HAS BEEN NOTICED THAT THE COMPANY, THROUGH THE SHARE-BROKERS OF THE CALCUTTA ARRANGE S OME SPECULATION LOSS AND OFFSET A CONSIDERABLE AMOUNT O F PROFIT AGAINST THIS LOSS. THE PERUSAL OF THE DOCUMENTS FIL ED BY ASSESSEE-COMPANY AT ANNEXURE-XVIII SHOWS THAT IN F. Y. 1992- 93 (A.Y. 1993-94), THE ASSESSEE-COMPANY EARNED PROF IT OF RS.2,68,92,000 IN TRANSACTION THROUGH ANZ GRINDLAYS BANK, CALCUTTA. SUBSEQUENTLY, IN THE SAME YEAR THE COMPAN Y BOOKED LOSS OF RS.18,51,750, RS.10,10,000, RS.26,96,500 AN D RS.55,41,750 TOTALLING TO RS.1,11,00,000 IN FOUR TR ANSACTIONS ROUTED THROUGH A SINGLE BROKER M/S. RAHUL AND COMPA NY, CALCUTTA. A SIMILAR PATTERN WAS FOLLOWED IN F.Y. 19 93-94 (A.Y. 1994-95) WHEREBY THE COMPANY FIRST EARNED A PROFIT OF RS.2,00,34,850 A LARGE PORTION OF WHICH WAS SET OFF BY BOOKING A LOSS OF RS.83,18,750, ALL THESE TRANSACTIONS BEIN G AGAIN ROUTED THROUGH THE SAME BROKER M/S. RAHUL AND COMPANY, CAL CUTTA. SUBSEQUENTLY, ENQUIRY SHOWED THAT THE TRANSACTION D ONE 4 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. THROUGH ANZ GRINDLAYS BANK WAS EXECUTED BY THE BANK THROUGH THE SAME BROKER M/S. RAHUL AND COMPANY. 2.2. ON PERUSAL OF THE ACCOUNTS OF THE ASSESSEE-CO MPANY, FOR DIFFERENT YEARS SHOWS THAT THE INVESTMENT MADE IN THE SHARES OF HDC ARE PRIMARILY OUT OF LOANS AND ADVANCES BY H DC ITSELF. THE INTEREST PAYMENT TO BANKS/FINANCIAL INSTITUTION S/HDC ARE SUBSTANTIALLY HIGH ON ACCOUNT OF HUGE BORROWS. THE MAIN SOURCE OF INCOME OF THE ASSESSEE-COMPANY IS DIVIDEND INCOM E ON SHARES OF HDC AND PROFIT IN DEALING OF SHARES AND S ECURITIES. THE A.O. REPRODUCED CHART AT PAGE-3 OF THE ASSESSME NT ORDER WHICH WOULD SHOW HOW THE EXCESS OF THE INTEREST PAY MENT TO HDC AND OTHERS ARE ADJUSTED AGAINST NEAR EQUIVALENT ARRANGED PROFITS, OVER AND ABOVE THE DIVIDEND AND OTHER SOUR CE OF INCOME WHICH IS ALSO REPRODUCED AS UNDER : F.Y. DIVIDEND INCOME PROFITS IN DEALING IN SHARES AND SECURITIES TOTAL INTEREST PAYMENT 90-91 9,85,708 38,23,519 48,09,227 58,59,429 91-92 78,34,837 1,47,93,463 2,26,28,300 2,26,68,553 92-93 1,10,92,308 1,57,92,000 2,68,84,308 3,51,96,702 93-94 1,21,74,221 1,17,16,100 2,38,90,321 3,61,23,484 94-95 1,43,22,097 1,20,30,000 2,63,52,097 2,93,26,783 95-96 1,28,92,984 24,06,100 1,57,99,084 1,72,50,083 96-97 1,29,00,844 -NIL- 1,29,00,844 1,30,09,053 5 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. 2.3. THE ASSESSEE-COMPANY WAS ASKED TO EXPLAIN THE SAME. THE A.O. THEREFORE, NOTED THAT SUCH SPECULATI ON PROFITS ARE ARRANGED IN COLLUSION WITH VARIOUS SHARE BROKER S. THIS IS CLEAR WITH THE STATEMENTS FURNISHED BY THE SHARE BR OKERS, SEIZED DOCUMENTS FROM THE O/O. HDC ETC. THE POST SEARCH INVESTIGATIONS AND SURVEY AT THE O/O. M/S. RAHUL AN D COMPANY, SHARE BROKER HAVE REVEALED CERTAIN INTERES TING FEATURES WHICH ARE DISCUSSED BY THE A.O. AS UNDER : A - THE SEIZED MATERIAL MARKED PAGES 53, 54, 55 AND 73 TO 76 OF HDC-14 FROM HINDUSTAN DEVELOPMENT CORPORATI ON PALPABLY INDICATE ARRANGEMENT OF PROFITS IN VARIOUS GROUP INVESTMENT COMPANY AND GROUP INDIVIDUAL MEMBERS IN COLLUSION WITH SHARE BROKERS. THE STATEMENT OF MR. SHISHIR KEJRIWAL OF KEJRIWAL AND COMPANY AND SH. DINESH KUM AR SINGHANIA OF M/S. DINESH KUMAR SINGHANIA AND COMPAN Y WERE RECORDED U/S.131(1A) ON 20.1.97 AND 26.2.97 RESPECTIVELY. THEY HAVE ADMITTED HAVING ARRANGED SPECULATION PROFITS AS PER THE REQUIREMENTS COMMUNI CATED BY THE GROUP EXECUTIVES SH. A. M. LODHA AND RECEIVI NG 6 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BACK OF CASH AGAINST CHEQUES ISSUED BY THEM. MR. A. M. LODHA, IN HIS STATEMENT RECORDED U/S. 132(4) ON 22. 11.96 HAD ADMITTED THAT, THE SEVERAL INVESTMENT COMPANY O F THE GROUP, ONE OF WHICH IS PROMAIN LTD., REQUIRED A LOT OF BOOK ENTRIES FROM THE MARKET FOR ADJUSTMENTS AND THE TER M 'DELIVERY PROFITS', 'TRADING PROFITS' REFERRED TO I N THE SEIZED DOCUMENT MARKED 53, 54, 55, & 73-76 OF 'HDC-14' REF ERRED TO BOOK ENTRIES FROM THE MARKET FOR NECESSARY ADJUS TMENTS. ALSO, MR. LODHA DECLINED THE OPPORTUNITY TO CROSS-E XAMINE SH. SHISHIR KEJRIWAL AND SH. DINESH KR. SINGHANIA, WHO UNDER OATH ADMITTED OF HAVING ARRANGED A SPECULATIO N PROFIT IN VARIOUS GROUP INVESTMENT COMPANIES DEPEND ING UPON THE REQUIREMENT, COMMUNICATED BY SH. LODHA. B. THOUGH MR. R.P. MODY AND HIS SON SH. VIKRAM ADIT YA MODY ARE NEITHER THE DIRECTORS NOR SHAREHOLDERS OF THE CONCERNED INVESTMENT COMPANY, ONE OF WHICH IS PROMA IN LIMITED, THEY ARE, HOWEVER, THE AUTHORISED SIGNATOR IES TO INVESTMENT IN THESE COMPANIES AND THE AUTHORISED SIGNATORIES IN THE BANK ACCOUNTS ARE NOT THE DIRECT ORS OR 7 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. SECRETARIES OF THE CONCERNED COMPANIES BUT SH. A. M . LODHA WHO IS THE KEY PERSON ARRANGING THE PROFITS IN COLL USION WITH THE SHARE BROKERS AND DETERMINING THE QUANTUM OF PR OFITS REQUIRED FOR NECESSARY ADJUSTMENTS. SH. R. P. MODY AND SH. V. A. MODY THOUGH DENIED THE PLOUGHING OF UNDISCLOS ED INCOME IN THE GROUP INVESTMENT, COMPANIES IN THE GA RB OF A SPECULATION PROFITS, HOWEVER, BOTH DECLINED THE OPP ORTUNITY TO CROSS EXAMINE SH. SHI SHISHIR KEJRIWAL AND SH. D INESH KUMAR SINGHANIA. THIS CONFIRMS THE ADMISSION MADE B Y THESE SHARE BROKERS. C. ENQUIRIES CONDUCTED FOLLOWING THE SEARCH OPERATI ONS REVEALED THAT, IN THE F.Y. 1992-93 THE COMPANY HAD SHOWN PROFIT FROM SHARE DEALS AT RS.2,68,92,000/-. AS AGA INST THIS THE TOTAL LOSS ON ACCOUNT OF SHARE TRANSACTION WAS SHOWN AT RS.1, 11,00,000/-. IT HAS ALSO COME TO THE NOTICE T HAT ANZ GRINDLAYS BANK ON BEING ASKED BY THE RELEVANT GROUP COMPANY ON 10.4.92 TRANSACTED IN ONE CRORE CANTRIPL ES HELD UNDER CERTIFICATE NO.389759 THROUGH M/S. RAHUL, AND COMPANY, SHARE BROKER OF CALCUTTA. M/S. RAHUL AND 8 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. COMPANY SHOWED THE PURCHASE OF THE RELEVANT CANTRIP LES FROM STANDARD 'CHARTERED BANK, BOMBAY ON 10.4.92 AN D SALE AND DELIVERY TO ANDHRA BANK FINANCIAL SERVICE LIMITED (ABFSL), BOMBAY ON 16.4.92, THE PURCHASE CONSIDERAT ION OF 15 CRORE WAS SHOWN TO HAVE BEEN PAID BY CANFINA ON BEHALF OF RAHUL AND COMPANY. AFTER THE SALE CONSIDERATION OF RS.25 CRORE WAS RECEIVED BY ANZ GRINDLAYS BANK FROM ABFSL 15 CRORE WAS REPAID TO CANFINA AND 10 CRORE O F THE SPECULATION PROFIT WAS CREDITED TO THE ACCOUNTS OF THE RELEVANT GROUP CONCERN, ONE OF WHICH IS OUR ASSESSE E COMPANY, HELD WITH ANZ GRINDLAYS BANK, CALCUTTA. TH E SUBSEQUENT ENQUIRIES MADE BY THE DEPARTMENT WITH RA HUL AND COMPANY, CANFINA, BANGALORE, STANDARD CHARTERED BANK, BOMBAY AND ANZ GRINDLAYS BANK, CALCUTTA AND BOMBAY, ABFSL, BOMBAY AND CANARA BANK, CALCUTTA REVEALED A PALPABLE CONTRADICTION IN THE VERSION PU T FORTH BEFORE THE DEPARTMENT BY THE GROUP CONCERN. THE CONTRADICTIONS REVEALED CONSEQUENT TO INVESTIGATION MADE BY THE DEPARTMENT IS AS FOLLOWS : 9 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (I) ANDHRA BANK FINANCIAL SERVICE LIMITED., OUTRIGHTLY DENIED HAVING TRANSACTED IN RELEVANT, CANTRIPLES. NO DELIVERY WAS RECEIVED BY THEM AND NO PAYMENT WAS MADE AGAINST, THE DELIVERY. THE PAYMENT OF RS.?5 CRORE RECEIVED BY ANZ GRINDLAYS BANK, CALCUTTA FROM THEIR HEAD OFFICE BOMBAY WAS TRACED TO THE ACCOUNT, OF SH. HITEN P. DALAI, SHARE BROKER, BOMBAY, HEAVILY INVOLVED IN THE SECURITIES SCAM DURING THE RELEVANT PERIOD. (II) NO EVIDENCE COULD BE PRODUCED BY RAHUL AND COMPANY REGARDING FISCAL DELIVERY OF THE RELEVANT. CANTRIPLES CERTIFICATE FROM STANDARD CHARTERED BANK , BOMBAY AND EVENTUAL SALE AND DELIVERY TO ABFSL. (III) THE REGULAR BOOKS OF ACCOUNT OF RAHUL AND COMPANY DO NOT RECORD THE SALE TRANSACTION OF THE RELEVANT, CANTRIPLES TO ABFSL. (IV) THE PAYMENT OF RS.15 CRORE MADE BY CANFINA TO STANDARD CHARTERED BANK, IS REFLECTED IN THE BOOKS OF CANFINA TOWARDS PURCHASE OF UNITS OF UTI-64 SCHEME. 10 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. THE PURCHASE ON 10.4.92 WAS REVERSED ON 16.4.92 AND A SUM OF RS.15,05,58,000/- RECEIVED BY CANFINA. BY WAY OF TWO SEPARATE CHEQUES - 15 CRORE FROM ANZ GRINDLAYS BANK AS DIRECTED BY RAHUL AND COMPANY TO ANZ GRINDLAYS BANK AND RS.5,58,000/- FROM THE ACCOUNT OF RAHUL AND COMPANY WITH AMERICAN EXPRESS BANK. THE ENTIRE TRANSACTION WAS ON ACCOUNT OF UNITS OF UTI-64 AND NOT THE RELEVANT CANTRIPLES. WHILE RAHUL AND COMPANY CLAIM THAT THE RELEVANT UTT UNITS WERE PHYSICALLY DELIVERED TO CANFINA FOR READ Y FORWARD DEALS, CANFINA HAS DENIED HAVING PHYSICALLY RECEIVED UTT UNITS OR ITS DELIVERY TO RAHUL AND COMPANY. (V) IN THE DEAL NOTES, THE STANDARD CHARTERED BANK, BOMBAY SHOWED THE PURCHASE OF RELEVANT. CANTRIPLES BY CANARA BANK AND NOT. RAHUL AND COMPANY. (VI) THE STANDARD CHARTERED BANK HAS SHOWN THE PURCHASE OF RELEVANT CANTRIPLES FROM CITI BANK ON 10.4.92, AN HOUR BEFORE THE SALE TO CANARA BANK IS 11 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. SHOWN IN THE DEAL NOTES. THE RELEVANT, CERTIFICATE NO. 389759 WAS PART, OF AN ORIGINAL CERTIFICATE NO.1022 33 OF 5 CRORES CANTRIPLES HELD, BY CITI BANK WHICH ALLEGEDLY ON A REQUEST MADE BY CITI BANK WAS SPLIT UP BY CANFINA ON 9.4.92 INTO FIVE CERTIFICATES OF ONE CRORE CANTIPLES EACH INCLUDING THE RELEVANT. CERTIFICATE NO. 389759. THE SUBSEQUENT ENQUIRIES MADE BY THIS DEPARTMENT WITH CANFINA, BANGALORE HAVE REVEALED THAT, NO REQUEST, WAS MADE BY CITIBANK TO CANFINA F OR SPLITTING OF THE ORIGINAL CERTIFICATE ON 9.4.92. TH E REGISTER MAINTAINED BY CANFINA SHOWS NO EVIDENCE FO R SPLITTING OF ORIGINAL CERTIFICATE NO. 102233 ON 9.4 .92 OR ITS DELIVERY TO CITI BANK ON 9.4.92 OR SUBSEQUENTLY . (VII) THE RELEVANT CANTRIPLES HAVE BEEN FINALLY REGISTERED IN THE NAME OF THE STANDARD CHARTERED BANK BY CANFINA ON 3.5.92. THE STANDARD CHARTERED BANK HAS NOT GIVEN ANY DETAILS OF REPURCHASE FROM HITEN P. DALAI, OR OTHER INTERMEDIARIES. THIS STRON GLY 12 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. INDICATES THAT THERE HAS BEEN NO MOVEMENT AT ALL OF THE RELEVANT CANTRIPLES. THE ENTIRE TRANSACTION IN VIEW OF THE ABOVE MENTIONED FINDINGS SHOWS THAT IT WAS AN ARRANGED TRANSACTION AND IT IS ONLY THE GROUP INVESTMENT COMPANIES, ONE OF THE WHICH IS M/S PROMAIN LTD., WHICH HAVE BENEFIT BY RECEIVING A SPECULATION PROFI T TO THE TUNE OF RS.10 CRORES. 2.4. THE A.O. FURTHER NOTED THAT THIS SPECULATION PROFITS ARE ARRANGED DEPENDING UPON REQUIREMENT OF THE INVE STMENT COMPANY. THIS IS DONE APPARENTLY TO INTRODUCE THE U NDISCLOSED INCOME OF THE FLAGSHIP COMPANY IN THE GARB OF SPECU LATION PROFITS, SUFFICIENT TO ADJUST THE DEBIT OF INTEREST PAYMENT. MOREOVER, IF THE PROFIT STILL REMAINS, THEY ARE OFF SET AGAINST THE ARRANGED SPECULATION LOSS. THE POST SEARCH ENQUIRIE S HAVE ALSO REVEALED THAT WHILE PLOUGHING BACK OF UNDISCLOSED F UNDS USED TO BE MADE AVAILABLE TO THE GROUP INVESTMENT COMPAN Y IN THE GARB OF A SPECULATION PROFITS, IT HAS ALSO CAME TO THE NOTICE THAT CORRESPONDING LOSSES ALSO USED TO BE ARRANGED AGAIN ST THE ACCOMMODATED PROFITS. IN A.Y. 1993-94, THE ASSESSEE -COMPANY 13 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. HAS SHOWN HUGE SPECULATION PROFIT ALLEGEDLY MADE TH ROUGH ANZ GRINDLAYS BANK DULY ROUTED THROUGH M/S. RAHUL AND C OMPANY, CALCUTTA. IT HAS ALSO SHOWN HUGE LOSS OF RS.1.11 CR ORES IN THE TRANSACTION OF SHARE AND SECURITIES MADE THROUGH M/ S. RAHUL AND COMPANY, CALCUTTA. IT MAY BE NOTED HERE THAT IN A.Y. 1994- 95, THE COMPANY HAS AGAIN BOOKED PROFIT OF RS.2,00, 34,850 AND LOSS OF RS.83,18,750, ALL DEALS MADE THROUGH M/S. R AHUL AND COMPANY, CALCUTTA. IN ORDER TO VERIFY THE GENUINENE SS OF THE TRANSACTIONS WHICH RESULTED IN SPECULATION LOSS, TH E ASSESSEE- COMPANY WAS ASKED TO FURNISH ENOUGH EVIDENCE SO AS TO PROVE THE GENUINENESS OF THE TRANSACTION. THE STATEMENT O F SHRI V.C. MEHTA, COMPANY SECRETARY OF THE ASSESSEE-COMPANY WA S ALSO RECORDED AND THE GIST OF HIS STATEMENT IS REPRODUCE D IN THE ASSESSMENT ORDER IN WHICH HE HAS EXPLAINED THAT THE COMPANY DOES NOT HAVE ANY RELATION WITH M/S. HDC LIMITED EX CEPT THAT IT IS A SHARE HOLDER OF HDC LIMITED AND HAVE NO BUS INESS TRANSACTIONS WITH THEM. THE A.O. ALSO NOTED THAT IT HAS BEEN ADMITTED BY SHRI V.C. MEHTA IN HIS STATEMENT RECORD ED UNDER SECTION 131 OF THE ACT THAT THE DECISIONS FOR INVES TMENT ON 14 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BEHALF OF THIS COMPANY ARE TAKEN BY THE PERSONS IN CALCUTTA WHO HAVE CLOSE LINKS WITH ALL THE MODY GROUP OF COMPANI ES, ONE OF THEM IS MR. R.P. MODY, CHAIRMAN, M/S. HINDUSTAN DEVELOPMENT CORPORATION, WHO IS ALSO AN AUTHORISED SIGNATORY OF THE ASSESSEE-COMPANY. 2.5. THE A.O. FURTHER NOTED THAT IT HAS BEEN ESTAB LISHED THAT ASSESSEE-COMPANY HAVE RECEIVED THE UNDISCLOSED PROFIT OF HDC GROUP IN THE GARB OF ARRANGED SPECULATION PROFI T, THE SPECULATION LOSS THAT IT HAD SHOWN IN A.YS. 1993-94 AND 1994- 95 AGAINST THE SPECULATION PROFIT, WHICH HAS ALSO B EEN RECEIVED THROUGH THE SAME BROKER M/S. RAHUL AND COMPANY OF C ALCUTTA. THE A.O. ASKED MR. V.C. MEHTA TO PRODUCE COPIES OF THE CHOPRI OR MATCH LIST OF THE BROKER M/S. RAHUL AND COMPANY THAT TRANSACTIONS RESULTING IN LOSS ARE NOT SHAM TRANSAC TIONS AND HE WAS ASKED TO PRODUCE COPY OF THE RELEVANT RECORD OF KOLKATA STOCK EXCHANGE TO VERIFY THE TRANSACTIONS WERE ROUT ED THROUGH KOLKATA STOCK EXCHANGE. HOWEVER, THE INFORMATION DE SIRED HAVE NOT BEEN FILED. THE A.O. IN THE ABSENCE OF ABOVE D ETAILS NOTED THAT IT PROVED THAT ASSESSEE-COMPANY IS ACTING AS A CONDUIT FOR 15 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. SIPHONING OF THE UNDISCLOSED PROFIT OF HDC GROUP IN THE GARB OF SPECULATION PROFIT. THE A.O. RELIED UPON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF MC. DOWELL AND COMPANY LTD., 154 ITR 148. THE A.O. IN THE ABSENCE OF MATER IAL BROUGHT ON RECORD, FOUND THE ENTIRE TRANSACTION TO BE SHAM WHICH MAKES-OUT UNDISCLOSED INCOME OF THE ASSESSEE-COMPAN Y FOR THE BLOCK PERIOD AND DISALLOWED THE SPECULATION LOSS SU FFERED BY ASSESSEE-COMPANY IN A.YS. 1993-94 AND 1994-95. THE CONCLUSION OF THE A.O. IS REPRODUCED AS UNDER : IF WE NOW LOOK AT THESE TRANSACTION IN TOTALITY WE FIND:- (I) THE FLAGSHIP COMPANY OF THE GROUP EARNED HUGE UNDISCLOSED PROFITS. (II) THE UNDISCLOSED PROFITS OF THE FLAGSHIP COMPANY IS PLOUGHED BACK IN SEVERAL INVESTMENT COMPANIES OF THE GROUP THROUGH THE SOPHISTICATED DEVICE OF A SPECULATION PROFIT. (III) THE FLAGSHIP COMPANY ADVANCES MONEY TO THE ASSESSES COMPANY WHICH IS UTILISED FOR SALES AND PURCHASES OF SHARES AND ON WHICH THE ASSESSEE COMPANY INCURS LIABILITY TO PAY INTEREST TO THE FLAGSHIP COMPANY. 16 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (IV) THE SPECULATION PROFIT IS, SET-OFF AGAINST THE INTEREST OUTGO, MOSTLY TO THE FLAGSHIP COMPANY. (V) WHEN IT IS REALISED THAT THERE REMAINS HUGE SURPLUS PROFIT EVEN AFTER SETTING OFF THE INTEREST OUTGO WHICH WOULD RESULT IN HIGH INCIDENCE OF TAXATION, SPECULATIVE LOSSES ARE ARRANGED THROUGH THE RELIABLE, BROKER WHO EARNS 0.5-1% COMMISSION FOR ORGANISING SUCH DEALS. (VI) IN THIS PROCESS THE UNDISCLOSED INCOME OF THE FLAGSHIP COMPANY IS FIRST ROUTED TO THE ASSESSEE COMPANY AND THEN PASSED BACK TO THE FLAGSHIP COMPANY IN THE LEGAL GARB OF INTEREST ON LOANS WHILE AT THE SAME TIME ENSURING THAT UNNECESSARY HIGH INCIDENCE OF TAXATION IS NOT SUFFERED BY THE ASSESSEE COMPANY. 19. THEREFORE, IF VIEWED AND EXAMINED THE ABOVE MENTIONED FACTS IN THE LIGHT OF THE OBSERVATIONS OF SUPREME COURT IN THE MC. DOWELLS CASE, ALL INTERVEN ING STEPS NEED NOT BE VIEWED IN ISOLATION. EACH TRANSAC TION IS CLOSELY INTERLINKED AND PURPORTED TO SERVE ONE OBJECTIVE - TO AVOID THE INCIDENCE OF TAX ON THE AS SESSEE COMPANY. THE BY PRODUCT OF ALL THESE DEVICES ADOPTE D BY THE ASSESSEE COMPANY IS ALSO TO SERVE AS A CONDU IT 17 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. FOR RECYCLING THE UNDISCLOSED PROFIT OF THE FLAGSHI P COMPANY IN AN APPARENT LEGAL GARB. I AM THEREFORE, OF THE VIEW THAT THE SPECULATI ON LOSS SUFFERED/BROUGHT BY THE COMPANY IN F. Y. 1992- 93 AND 1993-94 FROM M/S RAHUL AND COMPANY, THE SHARE BROKER IS NOTHING BUT A SHAM TRANSACTION AND IT IS THEREFORE, DISALLOWED. THE ASSESSEE COMPANY DELIBERATELY FAILED TO DISCLOSE PROFITS OF RS.1,11,00,000/- IN F. Y. 1992-93 AND RS.83,18,750/ - IN 1993-94 BY ARTIFICIALLY DEFLATING THE PROFIT AS DISCUSSED ABOVE. THIS AMOUNT OF RS.1,11,00,000/- AN D RS.83,18,750/- TOTALING RS.1,94,18,750/- ARE ADDED AS THE UNDISCLOSED INCOME OF THE ASSESSEE COMPANY FOR THE BLOCK PERIOD. 2.6. THE A.O. FURTHER NOTED THAT ASSESSEE-COMPANY ALONG WITH OTHER 07 CO-OWNERS OWNS PROPERTY NO.6, AMRITA SHERGILL MARG, NEW DELHI. THE ASSESSEE-COMPANY HAS 1/8 TH SHARE IN THIS PROPERTY. THIS PROPERTY IS AN OFFICIAL RESIDENCE OF MR. R.P. MODY, CHAIRMAN OF THE HDC LIMITED. DURING THE COURSE OF S EARCH AT HDC GROUP, CERTAIN PAPERS WERE FOUND WHICH SHOWED T HAT HUGE RENOVATION WORK IN THIS PROPERTY WAS UNDERTAKEN IN A.YS. 1996- 97 AND 1997-98. IN ORDER TO VERIFY AND ASCERTAIN TH E CORRECT 18 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. AMOUNT OF INVESTMENT IN THE RENOVATION OF THIS PROP ERTY, THE MATTER WAS REFERRED TO THE VALUATION CELL OF THE DE PARTMENT. THE VALUATION OFFICER SUBMITTED HIS REPORT DATED 26 .11.1997 TO THE A.O. OF M/S. PARAMOUNT ENTERPRISE, ONE OF THE C O-OWNER OF THIS PROPERTY. BEFORE THE VALUATION OFFICER, VARIOU S CO-OWNER COMPANIES INCLUDING THE ASSESSEE-COMPANY HAVE SUBMI TTED THAT THEY HAVE INVESTED RS.20,31,861 UP-TO THE DATE OF SEARCH IN THE RENOVATION OF THIS PROPERTY. THE VALUATION O FFICER IN HIS REPORT HAVE STATED THAT AS PER THEIR ESTIMATE, RENO VATION WORK UNDERTAKEN COMES TO RS.25,56,735. HENCE, THERE IS A DIFFERENCE OF RS.5,24,897, 1/8 TH OF THE SAME COMES TO RS.65,609. THE ASSESSEE DID NOT FILE ANY REPLY. THE A.O. ACCORDING LY, MADE ADDITION OF RS.65,609. THE A.O. ACCORDINGLY, COMPUT ED THE UNDISCLOSED INCOME OF ASSESSEE-COMPANY AT RS.1,94,8 9,359 IN THE BLOCK ASSESSMENT ORDER UNDER SECTION 158BC OF T HE I.T. ACT DATED 28.11.1997. 2.7. THE ASSESSEE-COMPANY CHALLENGED THE BLOCK ASSESSMENT ORDER BEFORE ITAT IN IT (SS) A.NO.325 OF 1997 WHICH WAS EARLIER DECIDED BY ITAT, DELHI-B BENCH, VIDE OR DER DATED 19 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. 23 RD JUNE, 2006. THE ASSESSEE-COMPANY INSISTED FOR PROD UCTION OF THE SEARCH WARRANT BY SUBMITTING THAT THERE WAS NO AUTHORIZATION OF SEARCH AGAINST THE ASSESSEE-COMPAN Y AND CHALLENGED THE VALIDITY OF THE SEARCH. THE TRIBUNAL NOTED THAT DESPITE DIRECTIONS BY THE BENCH, THE DEPARTMENT HAS NOT BEEN ABLE TO PRODUCE ANY AUTHORIZATION FOR CONDUCTING SE ARCH SPECIALLY IN THE NAME OF THE ASSESSEE-COMPANY. THER EFORE, ADVERSE INFERENCE WAS DRAWN AND IT WAS HELD THAT TH ERE WERE NO WARRANT OF AUTHORISATION IN THE NAME OF THE ASSESSE E-COMPANY, THEREFORE, BLOCK ASSESSMENT WAS HELD TO BE INVALID AND QUASHED. THE ASSESSEE-COMPANY ALSO CHALLENGED THE BLOCK ASSE SSMENT ORDER ON THE GROUND THAT NO UNDISCLOSED INCOME HAS BEEN EARNED BY THE ASSESSEE-COMPANY AND THAT COMPUTATION OF UNDISCLOSED INCOME HAS NOT BEEN MADE ON THE BASIS O F MATERIAL FOUND DURING THE COURSE OF SEARCH. THE TRIBUNAL NOT ED THAT THE COPIES OF THE SEIZED DOCUMENTS ARE FILED AT PAGES 2 15 TO 222 OF THE PAPER BOOK, ENTRIES DO NOT PERTAIN TO THE ASSES SEE-COMPANY. THEREFORE, NO ADDITION COULD BE MADE AGAINST THE AS SESSEE- COMPANY. IT WAS ALSO HELD THAT UNDISCLOSED INCOME A S 20 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. DETERMINED BY THE A.O. FOR A.YS. 1993-94 AND 1994-9 5 IS BASED ON POST-SEARCH ENQUIRY AND NOT ON THE BASIS OF THE MATERIAL FOUND DURING THE COURSE OF SEARCH OR EVIDENCE RELAT ED THERE TO. THEREFORE, ADDITION ON MERIT WAS ALSO DELETED. AS R EGARDS THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN THE VALUA TION OF INVESTMENT IN PROPERTY, THE ADDITION WAS DELETED BE CAUSE IT WAS NOT BASED ON ANY MATERIAL. THE APPEAL OF ASSESSEE-C OMPANY WAS ACCORDINGLY, ALLOWED. 3. THE REVENUE PREFERRED APPEAL AGAINST THE ORDER OF THE TRIBUNAL DATED 23 RD JUNE, 2006 BEFORE HONBLE DELHI HIGH COURT IN ITA.NO.308 OF 2007 WHICH WAS DECIDED VIDE JUDGME NT DATED 30 TH APRIL, 2012. THE REVENUE DEPARTMENT PRODUCED THE WARRANT OF AUTHORISATION BEFORE HONBLE HIGH COURT WHICH WAS IN THE NAME OF THE ASSESSEE-COMPANY. THEREFORE, FIN DING OF THE TRIBUNAL WAS FOUND CONTRARY TO THE ORIGINAL WARRANT . THEREFORE, THIS ISSUE WERE DECIDED AGAINST THE ASSESSEE-COMPAN Y. AS REGARDS THE SECOND QUESTION REGARDING ADDITION DELE TED ON MERIT, THE ORDER OF THE TRIBUNAL WAS SET ASIDE AND MATTER IN ISSUE WAS REMANDED TO THE TRIBUNAL AND TRIBUNAL WAS DIRECTED 21 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. TO DEAL WITH THE FACTUAL FINDINGS RECORDED BY THE A .O. AND THEN AFTER EXAMINING THE DOCUMENTS, EVIDENCE ON RECORD, RECORD THEIR FACTUAL CONCLUSION. IT WAS ALSO DIRECTED THAT THE A PPLICABILITY OF PROVISIONS OF THE ACT, HAVE ALSO TO BE EXAMINED. TH E HONBLE HIGH COURT CLARIFIED THAT THEY HAVE NOT EXPRESSED A NY OPINION ON THE MERITS OF THE MATTER. IT WILL BE OPEN TO THE TRIBUNAL TO EXAMINE THE ISSUE ON MERITS WITHOUT BEING INFLUENCE D BY THE ORDER OF THE HIGH COURT. IN VIEW OF THE DIRECTIONS OF THE HONBLE HIGH COURT, THE APPEAL OF THE ASSESSEE-COMPANY WAS RE-FIXED FOR HEARING ON MERITS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE-COMPANY IN THE PRESENT APPEAL HAS CHALLENG ED THE ADDITIONS OF RS.1.11 CRORES AND RS.83,18,750 ON ACC OUNT OF DISALLOWANCE OF SPECULATION LOSS AND ADDITION OF RS .65,609 ON ACCOUNT OF INVESTMENT IN RENOVATION. LEARNED COUNSE L FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE A.O. HE SUBMITTED THAT THE DISALLOWANCE OF THE LOSS ARISEN AS A RESULT OF SALE AND PURCHASE OF SHARES, WHICH CANNOT BE REGARD ED TO BE IN THE NATURE OF UNDISCLOSED INCOME, AS ADMITTEDLY NO 22 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. INCRIMINATING MATERIAL OF ANY NATURE HAS BEEN FOUND DURING THE COURSE OF SEARCH SO AS TO MAKE ADDITION UNDER CHAPT ER-XIVB OF THE I.T. ACT, 1961. HE HAS SUBMITTED THAT IT IS SET TLED LAW THAT THE PURPORT OF BLOCK ASSESSMENT UNDER CHAPTER-XIVB OF THE I.T. ACT, IS NOT INTENDED TO BE THE SUBSTITUTE FOR REGUL AR ASSESSMENT. ITS SCOPE AND AMBIT IS LIMITED TO THE INCRIMINATING MATERIALS FOUND DURING THE COURSE OF SEARCH. IT IS, IN ADDITI ON TO THE REGULAR ASSESSMENT ALREADY DONE OR TO BE DONE. THE ASSESSMENT FOR BLOCK PERIOD CAN ONLY BE DONE ON THE BASIS OF T HE INCRIMINATING EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF THE BOOKS OF ACCOUNT OR DOCUMENTS AND AS SUCH MA TERIAL OR INFORMATION AS ARE AVAILABLE WITH THE A.O. THE EVID ENCE FOUND AS A RESULT OF SEARCH IS CLEARLY RELATABLE IN SECTI ON 132 AND 132A OF THE I.T. ACT. HE HAS RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. RAVI KANT JAIN 250 ITR 141 AND ALSO RELIED UPON THE FOLLOWING DECISIONS IN SUPPORT OF THE ABOVE LEGAL PROPOSITION. (I) CIT VS. POOJA FORGE LTD., 389 ITR 382 (II) CIT VS. BALAJI WIRE (P.) LTD., 304 ITR 393 (D EL.) 23 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (III) CIT VS. JUPITER BUILDERS (P) LTD., 287 ITR 2 87 (DEL.) (IV) CIT VS. VISHAL AGGARWAL 283 ITR 326 (DEL.) (V) CIT VS. BLUECHIP CONSTRUCTION CO. (P.) LTD., 21 3 CTR 530 (DEL.). (VI) CIT VS. V.B. AGGAARWAL 296 ITR 750 (DEL.) 4.1. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE DOCUMENTS FOUND DURING THE COURS E OF SEARCH WERE ADMITTEDLY FOUND FROM THE PREMISES OF H DC, COPIES OF WHICH, ARE FILED AT PAGES 215 TO 222 OF THE PB A ND SUBMITTED THAT THESE DOCUMENTS WERE NEVER CONFRONTED TO THE A SSESSEE- COMPANY. NONE OF THESE DOCUMENTS COULD ESTABLISH TH AT EITHER IT PERTAIN TO THE ASSESSEE-COMPANY OR WERE MADE THE BASIS FOR MAKING DISALLOWANCE AS NO DISALLOWANCE WERE MADE ON THE BASIS OF THESE DOCUMENTS. THE SUBJECT MATTER OF DISALLOWA NCE OF LOSS ARISING IN A.YS. 1993-94 AND 1994-95 FOR AN AGGREGA TE SUM OF RS.1,94,18,750 WERE DISCLOSED IN THE BOOKS OF ACCOU NT FOR THE RELEVANT ASSESSMENT YEARS AND WERE ACCEPTED IN THE ORDER OF ASSESSMENTS FRAMED UNDER SECTION 143(3) ON 25.01.19 95 AND 28.11.1995 WHICH ASSESSMENTS WERE FRAMED MUCH PRIOR TO THE 24 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. DATE OF SEARCH I.E., 21.11.1996 AND HENCE, COULD NO T BE REGARDED BY ANY STRETCH OF IMAGINATION AS UNDISCLOSED INCOME WITHIN THE MEANING OF SECTION 158BB OF THE ACT. COPIES OF THE ASSESSMENT ORDERS ARE FILED AT PAGES 21 AND 22 AND 40 AND 42 O F THE PAPER BOOK. COMPUTATION OF INCOME AND COPIES OF THE RETUR NS OF THESE YEARS ARE ALSO FILED IN THE PAPER BOOK TO SHOW THAT SPECULATION LOSS HAVE ALREADY BEEN DISCLOSED AND ACCEPTED BY TH E REVENUE DEPARTMENT PRIOR TO THE SEARCH. THE COPIES OF THE R EPLIES ARE ALSO FILED WHICH WERE FILED BEFORE A.O. ON THE SUBJ ECT MATTER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT A.O . WAS SATISFIED WITH THE EXPLANATION OF THE ASSESSEE-COMP ANY AT THE ORIGINAL ASSESSMENT PROCEEDINGS AND AFTER VERIFYING THE RECORDS AND BOOKS OF ACCOUNT, THE CLAIM OF ASSESSEE-COMPANY HAS BEEN ACCEPTED. THE A.O. ACCEPTED THE GENUINE LOSS SUFFER ED BY THE ASSESSEE-COMPANY. HE HAS SUBMITTED THAT ASSESSEE-CO MPANY IS A PUBLIC LIMITED COMPANY. THE A.O. ACCEPTED THE PRO FIT FROM THE SAME BROKER M/S. RAHUL AND COMPANY, CALCUTTA. T HE ASSESSEE-COMPANY IS ONLY SHAREHOLDER OF HDC. THE LO SS SUFFERED BY THE ASSESSEE-COMPANY THUS, COULD NOT BE TREATED AS 25 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. UNDISCLOSED INCOME OF THE ASSESSEE-COMPANY. THE COP IES OF THE ORDER SHEETS AND REPLIES OF THE ASSESSEE-COMPANY AR E FILED IN THE PAPER BOOK. NO MATERIAL WAS FOUND IN SEARCH WIT H REGARD TO THE SPECULATION LOSS SUFFERED BY ASSESSEE-COMPANY A ND NO QUERY WAS RAISED BY THE A.O. THE A.O. MISUNDERSTOOD THE PROVISIONS OF BLOCK ASSESSMENT BECAUSE THE ADDITION COULD BE MADE ONLY ON THE BASIS OF THE EVIDENCE FOUND AS A R ESULT OF SEARCH OR REQUISITION OF THE BOOKS OF ACCOUNT OR OT HER DOCUMENTS AND SUCH MATERIAL OR INFORMATION AS ARE A VAILABLE TO THE A.O. RELATABLE TO SEARCH MATERIAL. HE HAS SUBMI TTED THAT IT IS WELL SETTLED LAW THAT MATERIAL GATHERED AS A RES ULT OF POST- SEARCH PROCEEDINGS COULD NOT BE GONE INTO SO AS TO MAKE ANY ADDITION UNDER BLOCK ASSESSMENT AND RELIED UPON DEC ISION OF THE TRIBUNAL IN THE CASE OF SUNDER AGENCIES VS. DCI T 63 ITD 245. HE HAS FURTHER SUBMITTED THAT THE STATEMENTS R ECORDED BY ADIT WHICH ARE DATED 21 ST JANUARY, 1997, UNDER SECTIONS 131 (1A) AND 133 OF THE ACT, AS WELL AS STATEMENTS RECO RDED ON 26 TH JANUARY, 1997 ARE AS A RESULT OF AGAIN POST-SEARCH ENQUIRY. HENCE, COULD NOT EVEN BE LOOKED INTO AS ADMITTEDLY NO 26 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. INCRIMINATING MATERIAL/ EVIDENCE WAS FOUND FROM THE PREMISES OF THE ASSESSEE-COMPANY DURING SEARCH. HE HAS SUBMI TTED THAT STATEMENTS OF THE TWO PERSONS NAMELY SHRI SISHIR KE JRIWAL AND SHRI DINESH KUMAR SINGHANIA WERE NEVER CONFRONTED T O THE ASSESSEE-COMPANY. THEREFORE, THE SAME CANNOT BE REA D IN EVIDENCE AGAINST THE ASSESSEE-COMPANY AND RELIED UP ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F KISHANCHAND CHELLARAM 125 ITR 713 (SC). HE HAS FURT HER SUBMITTED THAT BOTH THESE PERSONS RETRACTED FROM TH EIR STATEMENTS BY FILING AFFIDAVITS BEFORE ADIT. COPIES OF THE SAME ARE ALSO FILED IN THE PAPER BOOK. THE STATEMENTS OF SHRI V.C. MEHTA WAS RECORDED ON 26.11.1997 AFTER SEARCH WHICH WAS NOT RECORDED UNDER SECTION 132(4) OF THE I.T. ACT. HE H AS RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HARJEET AGARWAL 241 TAXMAN 199 (DEL.) (HC) WHER EIN IT HAS BEEN HELD THAT STATEMENTS RECORDED DURING SEARCH AN D SEIZURE OPERATION ARE NOT EVIDENCE FOUND AS A RESULT OF SEA RCH. HOWEVER, IT WAS HELD THAT STATEMENTS RECORDED WOULD CERTAINL Y CONSTITUTE INFORMATION AND IF SUCH INFORMATION IS RELATABLE TO THE EVIDENCE 27 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. OR MATERIAL FOUND DURING THE COURSE OF SEARCH, THE SAME COULD CERTAINLY BE USED AS EVIDENCE IN ANY PROCEEDINGS UN DER THE ACT AS EXPRESSLY MANDATED BY VIRTUE OF THE EXPLANATION TO SECTION 132(4) OF THE I.T. ACT, 1961. HOWEVER, SUCH STATEME NT ON A STANDALONE BASIS WITHOUT REFERENCE TO ANY OTHER MAT ERIAL DISCOVERED DURING THE SEARCH AND SEIZURE OPERATION COULD NOT EMPOWER THE A.O. TO MAKE BLOCK ASSESSMENT MERELY BE CAUSE ANY ADMISSION MADE BY THE ASSESSEE-COMPANY DURING S EARCH OPERATION. HE HAS ALSO RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS. MEETA G UTGUTIA 395 ITR 526 (DEL.) IN WHICH DISTINCTION HAS BEEN DRAWN BETWEEN THE STATEMENT RECORDED UNDER SECTION 132(4) AND SECTION 133A(3)(III) OF THE I.T. ACT. HE HAS SUBMITTED THAT NONE OF THE ABOVE PERSONS EVEN IN THEIR STATEMENTS HAVE MADE AN Y ALLEGATIONS AGAINST THE ASSESSEE-COMPANY OF TAKING ANY SPECULATION LOSS. NO CORROBORATIVE EVIDENCE HAS BEE N BROUGHT ON RECORD. COPIES OF THE AFFIDAVITS OF ALL THE PERS ONS RETRACTING FROM EARLIER STATEMENTS ARE FILED IN THE PAPER BOOK . HE HAS FURTHER SUBMITTED THAT IN THE BLOCK ASSESSMENT NO A DDITION CAN 28 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BE MADE ON THE BASIS OF VALUATION REPORT SUBMITTED BY THE DVO. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMIT TED THAT ALL THE ADDITIONS ARE WHOLLY UNJUSTIFIED AND COULD NOT BE MADE IN THE BLOCK ASSESSMENT. 5. ON THE OTHER HAND, LD. D.R. RELIED UPON THE ORD ER OF THE A.O. AND REFERRED TO THE ASSESSMENT ORDER IN DE TAIL TO HIGHLIGHT THE MODUS OPERANDI OF THE ASSESSEE-COMPANY AND ITS FLAGSHIP COMPANY AS TO HOW THE PROFITS HAVE BEEN SY PHONED IN THE GARB OF SPECULATION LOSS. THE LD. D.R. SUBMITTE D THAT THE TAX PROVISIONS HAVE TO BE STRICTLY CONSTRUED. THERE ARE MATERIAL FOUND DURING THE COURSE OF SEARCH TO JUSTIFY THE AD DITIONS MADE BY THE A.O. THE LD. D.R. SUBMITTED THAT UNDISCLOSED INCOME OF HDC HAVE BEEN SYPHONED THROUGH THE ASSESSEE-COMPANY BY OBTAINING BOGUS SPECULATION LOSS. BOTH THE LOSSES A RE ROUTED THROUGH M/S. RAHUL AND COMPANY, BROKER, CALCUTTA. T HE TOTAL PROFITS ARE SET-OFF AGAINST THE INTEREST INCOME. TH E LD. D.R. REFERRED TO COPIES OF THE SEIZED DOCUMENTS WHICH AR E FILED AT PAGES 215 TO 222 OF THE PAPER BOOK. THE LD. D.R. SU BMITTED THAT ASSESSEE-COMPANY IS CONDUIT TO BOOK LOSSES WHI CH ARE 29 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. SUPPORTED BY STATEMENTS OF SHRI SHISHIR KEJRIWAL, S HRI DINESH KUMAR SINGHANIA, AND SHRI V.C. MEHTA. SHRI R.P. MOD Y IS CONNECTED WITH THE HDC GROUP AS WELL AS THE ASSESSE E- COMPANY. THEREFORE, THERE IS A NEXUS BETWEEN THE FL AGSHIP COMPANY AND THE ASSESSEE-COMPANY. THE A.O. MADE INDEPENDENT ENQUIRES AS TO HOW PROFITS/LOSSES HAVE BEEN ARRIVED AT. THE ASSESSEE-COMPANY IS CONNECTED WITH SHRI HITEN P. DALAL, SHARE BROKER, INVOLVED IN SECURITY SCAM. NO EVIDENCE HAS BEEN BROUGHT AS TO HOW THE ASSESSEE-COMPANY HAS GENUINELY SUFFERED LOSSES. THE A.O. CONFRONTED ALL THE MATERIAL TO THE ASSESSEE-COMPANY AT ASSESSMENT STAGE. THE AS SESSEE- COMPANY HOWEVER, DID NOT PRODUCE ANY MATERIAL TO EX PLAIN THE SEIZED MATERIAL. THE LD. D.R. RELIED UPON SECTION 1 14 OF THE EVIDENCE ACT. THE LD. D.R. SUBMITTED THAT ONUS WAS UPON THE ASSESSEE-COMPANY TO PROVE THE GENUINE LOSSES SUFFER ED BY IT. HOWEVER, NOTHING HAS BEEN DONE BY THE ASSESSEE-COMP ANY. THEREFORE, ONUS HAVE NOT BEEN DISCHARGED BY THE ASS ESSEE- COMPANY. THEREFORE, ADDITION IS CORRECTLY MADE. THE LD. D.R. FILED WRITTEN SUBMISSIONS ALSO HIGHLIGHTING THE FAC TS NOTED BY 30 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. THE A.O. IN THE ASSESSMENT ORDER. THE LD. D.R. RELI ED UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF H.H. LAXMI BAI VS. CWT 206 ITR 688 ON THE PROPOSITION TH AT TAX STATUTE HAS TO BE STRICTLY CONSTRUED. THERE IS NO E QUITY IN THE TAXING PROVISIONS, THE DECISION OF DELHI HIGH COURT IN THE CASE OF BHAGIRATH AGGARWAL (2013) 351 ITR 143 (DEL.) IN WHICH IT WAS HELD THAT AN ADDITION IN ASSESSEES INCOME RELYING ON STATEMENTS RECORDED DURING SEARCH OPERATION CANNOT BE DELETED WITHOUT PROVING STATEMENTS TO BE INCORRECT, THE ORDER OF ITAT, AHMEDABAD BENCH IN THE CASE OF MANHARLAL KASTURCHAN D CHOKSHI VS. ACIT 61 ITD 55 IN WHICH IT WAS HELD THA T ADMISSION BY THE PARTY IS A BEST EVIDENCE ON A POINT IN ISSUE AND THOUGH NOT CONCLUSIVE, IS DECISIVE OF THE MATTER UNLESS SPECIF ICALLY WITHDRAWN OR PROVED ERRONEOUS, ORDER OF ITAT, BANGALORE BENCH IN THE CASE OF CARPENTERS CLASSIC (EXIM) PVT. LTD., VS. DCIT 108 ITD 142 IN WHICH IT WAS HELD THAT ASSESSEE HAD NOT RETRACTED DISCLOSURE BEFORE AUTHORISED OFFICER AND THERE WAS A TIME GAP IN RETRACTION. THEREFORE, UNDISCLOSED INCO ME WAS CORRECTLY DETERMINED. THE LD. D.R. SUBMITTED THAT SHE HAS FILED 31 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. THE STATEMENT OF SHRI ABHOYMAL LODHA DATED 03.03.19 97, WHILE RECORDING THE RETRACTION STATEMENT, HE WAS OFFERED TO CROSS- EXAMINE SHRI DINESH KUMAR SINGHANIA, BUT ASSESSEE D ID NOT WANT TO CROSS-EXAMINE SHRI DINESH KUMAR SINGHANIA. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE PROCEEDING T O DECIDE THE ADDITIONS ON MERIT, IT WOULD BE RELEVANT TO REPRODU CE THE RELEVANT PROVISIONS OF CHAPTER-XIVB OF THE I.T. ACT FOR COMPUTING THE INCOME FOR BLOCK PERIOD. 6.1. CHAPTER XIV-B STARTS WITH SECTION 158B AND PR OVIDES THE DEFINITION OF BLOCK PERIOD AND UNDISCLOSED INCOME . UNDISCLOSED INCOME IS RELEVANT IN THIS CASE, WHIC H IS REPRODUCED BELOW AS AMENDED BY FINANCE ACT, 2002 W. E.F. 1.7.1995 : S. 158B(B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTICLE, THING, ENTRY IN THE 32 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT, OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. THIS SECTION SHOWS THAT THE FOLLOWING CONDITIONS MU ST BE SATISFIED TO TREAT THE INCOME AS UNDISCLOSED INCOME I.E. : (I) IT MUST BE IN THE FORM OF MONEY, BULLION, JEWELLERY, OTHER VALUABLE ARTICLE OR THING OR SHOULD CONSTITUTE INCOME OR PROPERTY BASED ON ANY ENTRY IN THE BOOKS OF ACCOUNTS OR OTHER DOCUMENT OR TRANSACTION; (II) IT SHOULD BE AVERRED THAT THE ASSETS OR ENTRY IN THE BOOKS REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. (III) OR ANY EXPENSES, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS HEAD, WHICH IS FOUND TO BE FALSE. SECTION 158BB(1) PROVIDES FOR COMPUTATION OF UNDISC LOSED INCOME OF THE BLOCK PERIOD AND IS REPRODUCED AS UND ER: (1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHALL BE THE AGGREGATE OF THE TOTAL INCOME OF THE 33 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED, IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT, ON THE BASIS OF EVIDENCE FOUND AS A RESUL T OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATION AS ARE AVAILABLE WITH THE AO AND RELATABLE TO SUCH EVIDENCE AS REDUCED BY THE AGGREGATE OF THE TOTAL INCOME, OR AS THE CASE MAY BE, AS INCREASED BY THE AGGREGATE OF THE LOSSES OF SUCH PREVIOUS YEARS, DETERMINED,- (A) WHERE ASSESSMENTS U/S 143 OR SEC. 144 OR SEC. 147 HAVE BEEN CONCLUDED [PRIOR TO THE DATE OF COMMENCEMENT OF THE SEARCH OR THE DATE OF REQUISITION], ON THE BASIS OF SUCH ASSESSMENTS; (B) WHERE RETURNS OF INCOME HAVE BEEN FILED U/S 139 [OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SEC. 142 OR SECTION 148] BUT ASSESSMENTS HAVE NOT BEEN MADE TILL THE DATE OF SEARCH OR REQUISITION, ON THE BASIS OF THE INCOME DISCLOSED IN SUCH RETURNS; (C) WHERE THE DUE DATE FOR FILING A RETURN OF INCOME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, - 34 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (A) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHERE SUCH ENTRIES RESULT IN COMPUTATION OF LOSS FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; OR (B) ON THE BASIS OF ENTRIES AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION WHERE SUCH INCOME DOES NOT EXCEED THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX FOR ANY PREVIOUS YEAR FALLING IN THE BLOCK PERIOD; (CA) WHERE THE DUE DATE FOR FILING A RETURN OF INCOME HAS EXPIRED, BUT NO RETURN OF INCOME HAS BEEN FILED, AS NIL, IN CASES NOT FALLING UNDER CLAU SE (C);] (D) WHERE THE PREVIOUS YEAR HAS NOT ENDED OR THE DATE OF FILING THE RETURN OF INCOME UNDER SUB- SECTION (1) OF SEC. 139 HAS NOT EXPIRED, ON THE BASIS OF ENTRIES RELATING TO SUCH INCOME OR TRANSACTIONS AS RECORDED IN THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS MAINTAINED IN THE NORMAL COURSE ON OR BEFORE THE DATE OF THE SEARCH OR REQUISITION RELATING TO SUCH PREVIOUS YEARS; 35 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (E) WHERE ANY ORDER OF SETTLEMENT HAS BEEN MADE UNDER SUB-SECTION(4) OF SEC. 245D, ON THE BASIS OF SUCH ORDER; (F) WHERE AN ASSESSMENT OF UNDISCLOSED INCOME HAD BEEN MADE EARLIER UNDER CLAUSE (C) OF SEC. 158BC, ON THE BASIS OF SUCH ASSESSMENT. EXPLANATION - FOR THE PURPOSE OF DETERMINATION OF UNDISCLOSED INCOME, - (A) THE TOTAL INCOME OR LOSS OF EACH PREVIOUS YEAR SHALL, FOR THE PURPOSE OF AGGREGATION, BE TAKEN AS THE TOTAL INCOME OR LOSS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF [THIS ACT] WITHOUT GIVING EFFECT TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUBSECTION (2) OF SECTION 32; [PROVIDED THAT IN COMPUTING DEDUCTIONS UNDER CHAPTER VI-A FOR THE PURPOSES OF THE SAID AGGREGATION, EFFECT SHALL BE GIVEN TO SET OFF OF BROUGHT FORWARD LOSSES UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SEC. 32;] (B) OF A FIRM, RETURNED INCOME AND TOTAL INCOME ASSESSED FOR EACH OF THE PREVIOUS YEARS 36 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. FALLING WITHIN THE BLOCK PERIOD SHALL BE THE INCOME DETERMINED BEFORE ALLOWING DEDUCTION OF SALARY, INTEREST, COMMISSION, BONUS OR REMUNERATION BY WHATEVER NAME CALLED [TO ANY PARTNER NOT BEING A WORKING PARTNER]; PROVIDED THAT UNDISCLOSED INCOME OF THE FIRM SO DETERMINED SHALL NOT BE CHARGEABLE TO TAX IN THE HANDS OF THE PARTNERS, WHETHER ON ALLOCATION OR ON ACCOUNT OF ENHANCEMENT;] (C) ASSESSMENT UNDER SECTION 143 INCLUDES DETERMINATION OF INCOME UNDER SUB-SECTION (1) OR SUB-SECTION (1B) OF SEC. 143. (2) IN COMPUTING THE UNDISCLOSED INCOME OF THE BLOCK PERIOD, THE PROVISIONS OF SECTIONS 68, 69, 69A, 69B AND 69C SHALL, SO FAR AS MAY BE, APPLY AND REFERENCES TO F INANCIAL YEAR IN THOSE SECTIONS SHALL BE CONSTRUED AS REFER ENCES TO THE RELEVANT PREVIOUS YEAR FALLING IN THE BLOCK PER IOD INCLUDING THE PREVIOUS YEAR ENDING WITH THE DATE OF SEARCH OR OF THE REQUISITION. (3) THE BURDEN OF PROVING TO THE SATISFACTION OF THE A O THAT ANY UNDISCLOSED INCOME HAD ALREADY BEEN DISCLO SED IN ANY RETURN OF INCOME FILED BY THE ASSESSEE BEFORE T HE COMMENCEMENT OF SEARCH OR THE REQUISITION, AS THE C ASE MAY BE, SHALL BE ON THE ASSESSEE. 37 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. (4) FOR THE PURPOSE OF ASSESSMENT UNDER THIS CHAPTER, LOSSES BROUGHT FORWARD FROM THE PREVIOUS YEAR UNDER CHAPTER VI OR UNABSORBED DEPRECIATION UNDER SUB-SEC TION (2) OF SECTION 32 SHALL NOT BE SET OFF AGAINST THE UNDISCLOSED INCOME DETERMINED IN THE BLOCK ASSESSMENT UNDER THI S CHAPTER, BUT MAY BE CARRIED FORWARD FOR BEING SET O FF IN THE REGULAR ASSESSMENTS. 6.2 WE, AFTER CONSIDERING THE ABOVE PROVISIONS, AR E OF THE OPINION THAT EVEN IF THERE IS AN AMENDMENT IN THE A BOVE SECTIONS, THE SCHEME OR PURPOSE OF ENACTING CHAPTER XIV-B HAS NOT UNDERGONE A MAJOR CHANGE IN THE SENSE THAT THE BLOCK ASSESSMENT PERTAINING TO A NUMBER OF YEARS REMAINS DISTINCT FROM ASSESSMENT U/S 143(3) PERTAINING TO A SINGLE A Y. THE BLOCK ASSESSMENT COULD BE MADE IN RESPECT OF UNDISCLOSED INCOME IF DURING THE BLOCK PERIOD UNDISCLOSED INCOME IS RECOV ERED AS A RESULT OF EVIDENCE FOUND DURING THE COURSE OF SEARC H AND NOT AS A RESULT OF OTHER DOCUMENTS OR MATERIAL WHICH CAME TO THE POSSESSION OF THE AO SUBSEQUENT TO THE CONCLUSION O F SEARCH OPERATION UNLESS AND UNTIL SUCH 'MATERIAL OR DOCUMENT IS RELATABLE TO SUCH EVIDENCE RECOVERED DURING THE COU RSE OF THE- SEARCH. THE AMENDED DEFINITION OF SEC. 158BB AS MEN TIONED 38 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. ABOVE CLEARLY SUGGESTS THAT SOME EVIDENCE IS TO BE FOUND AS A RESULT OF SEARCH OPERATION AND IT IS ONLY THEREAFTE R THAT THE REMAINING PART OF THE PROVISIONS COME INTO PLAY AND THAT TOO THE REMAINING EVIDENCE MUST BE RELATABLE TO THE EVIDENC E RECOVERED DURING THE COURSE OF THE SEARCH. THE OTHER AMENDMEN T IN SEC. 158B(B) WHICH IS REPRODUCED ABOVE HAS ENLARGED THE MEANING OF THE TERM UNDISCLOSED INCOME BY INCLUDING THEREIN ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. WHAT HAS TO BE SEEN IS THAT THE VALUABLE ARTICLES, DOCUMENTS OR TRANSACTIONS WHICH REPRESENT WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN OR WOU LD NOT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. THEREFO RE, BEFORE COMING TO ANALYZE WHAT IS UNDISCLOSED INCOME, IT IS NECESSARY TO BE SEEN THAT SUCH INCOME HAS NOT BEEN OR WOULD N OT HAVE BEEN DISCLOSED FOR THE PURPOSE OF THIS ACT. IF ANY SUCH ARTICLE OR THING OR INCOME HAS ALREADY BEEN DISCLOSED TO THE D EPARTMENT PRIOR TO THE SEARCH, IT CANNOT BE TERMED THAT THE S AME HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPO SE OF THIS ACT. THEREFORE, WHATEVER ITEMS OR ARTICLES HAVE BEE N SHOWN TO 39 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. THE DEPARTMENT PRIOR TO THE SEARCH CANNOT BE TREATE D AS UNDISCLOSED INCOME. 6.3. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. VINOD DANCHAND GHODAWAT, 247 ITR 448 (BOM.) OBS ERVED : .WHERE THE VALUE OF THE GOLD AND SILVER ARTICLES AND JEWELLERY HAD BEEN DISCLOSED IN THE ASSESSEES WEAL TH- TAX RETURN WHICH WAS ACCEPTED BY THE DEPARTMENT. HELD, THAT CHAPTER XIV-B OF THE IT ACT, 1961 HAD NO APPLICATION TO THE FACTS OF THE CASE AND THE ADDITI ON MADE BY THE DEPARTMENT ON THE GROUND OF UNDISCLOSED INCO ME WAS ERRONEOUS. 6.4. THE HONBLE CALCUTTA HIGH COURT IN TH E CASE OF BHAGWATI PD. KEDIA CIT, 248 ITR 562 (CAL.) OBSERVED THE EXPLANATION TO SEC. 158BA OF THE IT ACT, 1961 MAKES IT CLEAR THAT THE LEGISLATURE THOUGHT IT FIT TO MAKE A DISTINCTION BETWEEN THE BLOCK ASSESSMENT AND THE RE GULAR ASSESSMENT. IN THE CASE OF REGULAR ASSESSMENT, THE AO IS FREE TO EXAMINE THE VERACITY OF THE RETURN AS WELL AS THE 40 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. CLAIMS MADE BY THE ASSESSEE, WHEREAS THE UNDISCLOSE D INCOME IS TAXED BY WAY OF BLOCK ASSESSMENT AS A RES ULT OF SEARCH AND SEIZURE. THE LOGIC BEHIND THE TWO DIFFER ENT MODES OF ASSESSMENT IS THAT CONCEALMENT OF INCOME A ND CLAIMING DEDUCTION OR EXEMPTION IN RESPECT OF A DIS CLOSED INCOME CANNOT BE TREATED AT PAR. THE FORMER IS AN O FFENCE WHICH GOES TO THE ROOT OF THE MATTER AND THE OTHER IS ON THE BASIS OF THE CAUSES SHOWN BY THE ASSESSEE WHERE THE AO IS FREE TO ACCEPT THE JUSTIFICATION SHOWN OR REJECT TH E SAME. THERE WAS A SEARCH AND SEIZURE RESULTING IN BLOCK ASSESSMENT OF THE ASSESSEE. DURING THE BLOCK ASSESS MENT, THE ASSESSEE WAS CALLED UPON TO EXPLAIN THE ADVANCE TAKEN FROM A COMPANY. THE ASSESSEE HAD FILED THE CONFIRMA TION LETTER OF LOAN FROM THE COMPANY INCLUDING INCOME TA X FILE NUMBERS OF THE CREDITOR. THE INCOME-TAX AUTHORITY H ELD THAT THE SAID LOAN WAS A FICTITIOUS ONE AND WAS TO BE CO NSIDERED AS UNDISCLOSED INCOME OF THE ASSESSEE DURING THE PE RIOD UNDER CONSIDERATION. ON THE QUESTION WHETHER THE AO WAS ENTITLED TO QUESTION THE LOAN AMOUNT WHICH WAS THE SUBJECT 41 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. MATTER OF REGULAR ASSESSMENT, WHILE MAKING BLOCK ASSESSMENT. HELD, THAT THE AO WAS NOT ENTITLED TO QUESTION IN B LOCK ASSESSMENT THE LOAN WHICH WAS A SUBJECT MATTER OF T HE REGULAR ASSESSMENT. THE AO WAS WRONG IN HOLDING THA T THE SAID SUM COULD BE TAXED IN BLOCK ASSESSMENT ALTHOUG H THE SAME FEATURED IN THE REGULAR BOOKS OF ACCOUNT. WHEN THE LOAN CREDITOR WAS AN ASSESSEE AND IN WHOSE ASSESSME NT THE LOAN ADVANCED HAD BEEN ACCEPTED BY THE REVENUE, THE AO WAS WRONG IN HOLDING THAT THE ASSESSEE WAS LIABL E TO PAY TAX ON THAT LOAN MONEY TAKEN FROM THE ASSESSEE. 6.5. IN CASE OF CIT VS. RAVI KANT JAIN, 250 ITR 14 1 (DEL.), THE HONBLE DELHI HIGH COURT OBSERVED: BLOCK ASSESSMENT UNDER CHAPTER XIV-B OF THE IT ACT , 1961, IS NOT INTENDED TO BE A SUBSTITUTE FOR REGULAR ASSE SSMENT. ITS SCOPE AND AMBIT IS LIMITED IN THAT SENSE TO MAT ERIALS UNEARTHED DURING SEARCH. IT IS IN ADDITION TO THE R EGULAR ASSESSMENT ALREADY DONE OR TO BE DONE. THE ASSESSME NT FOR THE BLOCK PERIOD CAN ONLY BE DONE ON THE BASIS OF E VIDENCE 42 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR DOCUMENTS AND SUCH OTHER MATERIALS OR INFORMATIO N AS ARE AVAILABLE WITH THE AO. EVIDENCE FOUND AS A RESULT OF SEARCH IS RELATABLE TO SECTIONS 132 AND 132A. HELD, THAT, ADMITTEDLY THE UNDISCLOSED INCOME WAS N OT DETERMINED ON THE BASIS OF ANY SEARCH MATERIAL AND THE AO WAS PROCEEDING WITHIN THE SCOPE OF THE ASSESSMENT A ND NOT WITHIN THE SCOPE OF EXERCISING JURISDICTION UNDER C HAPTER XIV-B AND SEC. 158BA. THEREFORE, SEC. 158BA OF THE ACT HAD NO APPLICATION TO THE FACTS OF THE CASE. 6.6. IN THE CASE OF SUNDER AGENCIES VS. DCIT, 63 I TD 245, ITAT, MUMBAI BENCH B HELD AS UNDER : SEC. 158BA OF THE IT ACT, 1961 - SEARCH AND SEIZUR E - BLOCK PERIOD 1.4.1985 TO 16.11.1995 - WHETHER WITHI N PALE OF CHAPTER XIVB ASSESSMENT COULD BE MADE ONLY IN RE SPECT OF UNDISCLOSED INCOME AND SUCH UNDISCLOSED INCOME M UST COME AS A RESULT OF SEARCH - HELD, YES - WHETHER SE C. 158BA DOES NOT PROVIDE A LICENSE TO REVENUE FOR MAKING RO VING ENQUIRIES CONNECTED WITH COMPLETED ASSESSMENT AND I S 43 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BEYOND POWER OF AO TO REVIEW ASSESSMENTS COMPLETED UNLESS SOME DIRECT EVIDENCE COMES TO KNOWLEDGE OF DEPARTMENT AS A RESULT OF SEARCH WHICH INDICATES CL EARLY FACTUM OF UNDISCLOSED INCOME - HELD, YES - WHETHER SCHEME OF CHAPTER XIVB GIVES POWER TO REVENUE TO DRAW PRESUMPTION IN REGARD TO UNDISCLOSED INCOME - HELD, NO - ASSESSEE CLAIMED 1 TO 1.5 PER CENT OUT OF TOTAL SAL ES AS SALES PROMOTION EXPENSES - DURING SEARCH PROCEEDI NGS A BOOK CALLED GIFT REGISTER WAS SEIZED FROM ASSESSE ES BUSINESS PREMISES - GIFT REGISTER RELATED TO SALE P ROMOTION EXPENSES - IN EARLIER ASSESSMENT PROCEEDINGS COVERING BLOCK PERIOD IN QUESTION, SUCH EXPENSES WERE DISCLO SED AND DISALLOWANCES WERE MADE - NEITHER ANY INCRIMINATING MATERIAL REVEALING UNDISCLOSED INCOME CAME TO LIGHT NOR ENQUIRY REGARDING SALES PROMOTION EXPENSES IN PROCE EDING U/S 132(1) WAS MADE. WHETHER ADDITION ON ACCOUNT OF SALES PROMOTION EXPENSES ON ESTIMATE BASIS COULD BE JUSTI FIED - HELD NO. 44 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. 6.7. IN THE CASE OF DIGVIJAY CHEMICAL LTD. VS. ACI T, 68 TTJ 280, ITAT, DELHI BENCH E HELD THAT ADDITION BASED ON SUSPICION AND SURMISES ARE NOT COVERED U/S 158B(B). IT WAS FURTHER HELD THAT THE ADDITION U/S 158B(B) MUST BE MADE ON CONCRETE MATERIAL. 6.8. IN THE CASE OF P.K. GANESHWAR VS. DCIT, 80 IT D 429 (CHENNAI), ITAT, CHENNAI BENCH C HELD - SEC. 158BA OF THE IT ACT, 1961 - BLOCK ASSESSMENT SEARCH CASES - ASSESSMENT OF UNDISCLOSED INCOME AS A RESUL T OF SEARCH - WHETHER, WHERE UNDISCLOSED INCOME IS FOUND NOT ON BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH BU T ON INVESTIGATION AND INQUIRIES MADE FOLLOWING SEARCH, SUCH INCOME COULD BE INCLUDED AS UNDISCLOSED INCOME OF B LOCK PERIOD COMPUTED UNDER CHAPTER IV - HELD, NO - WHETH ER CHAPTER XIV-B IS A SPECIAL PROVISION FOR ASSESSMENT OF UNDISCLOSED INCOME FOUND AS A RESULT OF SEARCH ONLY AND THERE IS NO SCOPE FOR CONSIDERING ITEMS THAT COULD BE CONSIDERED UNDER REGULAR ASSESSMENT - HELD, YES. 45 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. 6.9. HONBLE CALCUTTA HIGH COURT IN THE CASE OF CI T VS. ASHIM KRISHNA MONDAL, 270 ITR 160 AT PAGES 163 AND 164 OB SERVED: THE PRINCIPLE THAT HAS BEEN LAID DOWN FOR THE PURP OSE OF MAKING ASSESSMENT ARE SETTLED PROPOSITION AS WAS REFERRED TO BY THE ID. TRIBUNAL IN THE CASE OF SUND ER AGENCIES VS. DCIT [1997] 63 ITD 245 (MUMBAI); T.S. KUMARASAMY VS. ACIT [1998] 65 ITD 188 (MAD), AT PAG E 206 AND INDORE CONSTRUCTION (P) LTD. VS. ACIT [1999 ] 71 ITD 128 (INDORE) WHEREIN THE MUMBAI BENCH OF THE IT AT, THE MADRAS BENCH OF THE ITAT AND THE INDORE BENCH O F THE ITAT, RESPECTIVELY, HAD HELD THAT THE INCOME FO R BLOCK ASSESSMENT UNDER SEARCH AND SEIZURE PROCEDURE IS TO BE COMPUTED STRICTLY ON THE BASIS OF THE DOCUMENTS SEI ZED; AND IT CANNOT PROCEED ON CONJECTURES AND/OR SURMISE S AND ARRIVE AT AN ESTIMATION INSTEAD OF COMPUTATION. THE WORD COMPUTATION CONNOTES A DIFFERENT MEANING THA N ESTIMATION OR APPRAISAL. COMPUTATION PRESUPPOSES A CALCULATION ON THE BASIS OF THE MATERIALS, WHICH IS SOMETHING DIFFERENT FROM ESTIMATION OR APPRAISAL AN D IT 46 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. MUST BE BASED ON METHODICAL CALCULATION WITH SOME AMOUNT OF APPROXIMITY TO MATHEMATICAL PROCESS ON TH E MATERIALS AVAILABLE ON SEARCH AND SEIZURE. 6.10. ITAT, DELHI BENCH (TM) IN THE CASE OF DANG & CO. PVT. LTD. VS. DCIT, 277 ITR (AT) 190 HELD : THE ASSESSEE EXPLAINED THAT IT WAS AN ESTATE AGENT AND THE AMOUNT RECEIVED BY THE ASSESSEE WAS AN ADVANCE RECEIVED TOWARDS PURCHASE OF CERTAIN PROPERTIES. ASSUMING IT WAS A LOAN RECEIVED BY THE ASSESSEE, IT WAS NOT IN DISPUTE THAT THE ASSESSEE H AD FILED ITS REGULAR RETURN OF INCOME FOR THE AY 1994- 95 DISCLOSING THE AMOUNT IN THE BALANCE-SHEET. IF IT W AS A LOAN, THE AMOUNT THEREOF COULD HAVE BEEN ADDED TO T HE TOTAL INCOME U/S 68 ONLY IF IT WAS HELD TO BE A NON - GENUINE LOAN. THE GENUINENESS COULD HAVE BEEN GONE INTO ONLY IN THE COURSE OF REGULAR ASSESSMENT WHEN THE ASSESSEE HAD DULY DISCLOSED THE AMOUNT IN ITS BALANCE-SHEET. THE ASSESSEE HAD DISCHARGED ITS PART OF THE OBLIGATION BY DISCLOSING THE AMOUNT IN THE 47 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BALANCE-SHEET AND BY FILING THE RETURN. IT WAS NOT THE ASSESSEES FAULT THAT NO ASSESSMENT WAS MADE. IT WAS OF NO CONSEQUENCE UNDER WHICH HEAD THE AMOUNT WAS DISCLOSED IN THE BALANCE-SHEET. IF IT WAS AN ADVANCE FROM A CUSTOMER FOR PURCHASE OF PROPERTY, I T COULD NOT BE TREATED AS INCOME BECAUSE IT WAS MEREL Y AN ADVANCE TOWARDS PURCHASE OF PROPERTY AND IN NO WAY THE INCOME OF THE ASSESSEE. WHEN THE AMOUNT STOOD DULY DISCLOSED IN THE REGULAR RETURN OF INCOM E, THE AO COULD NOT RESORT TO BLOCK ASSESSMENT PROCEEDINGS TO GO INTO ITS GENUINENESS AND SUBJECT IT TO A HIGHER RATE OF TAX. THE ADDITION OF RS.55 LAKH S WAS NOT JUSTIFIED. 6.11. HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. G.K. SENNIAPPAN, 284 ITR 220 HELD : THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF CHIT FUND AND REAL ESTATE. IN A SEARCH CONDUCTED AGAINST A THIRD PERSON IT WAS FOUND THAT THE ASSESSEE HAD UTILIZED UNDISCLOSED INCOME FOR MAKING CONTRIBUTION S 48 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. TO CERTAIN UNREGISTERED CHITS CONDUCTED BY THE SAID PERSON. THEREAFTER, A SURVEY WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE WHICH INDICATED CERTAIN REAL ESTATE TRANSACTIONS CARRIED ON BY THE ASSESSEE AND PROFITS DERIVED THEREON HAD NOT BEEN DISCLOSED TO THE DEPARTMENT. THE AO INCLUDED U/S 158BB THE UNDISCLOSED INCOME FOUND DURING THE SURVEY MADE U/S 133 A. THE COMMISSIONER (APPEALS) EXCLUDED THAT PORTION WHICH HAD BEEN INCLUDED BASED ON THE MATERIAL FOUND DURING THE SURVEY ON THE PREMISES THAT IN RESPECT OF BLOCK ASSESSMENT U/S 133A COULD NOT BE TAKEN INTO CONSIDERATION. THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL CONTENDING THA T THE MATERIAL GATHERED IN THE COURSE OF SURVEY U/S 133A COULD ALSO BE REGARDED AS A MATERIAL FOR THE PURPOSE OF B LOCK ASSESSMENT U/S 158BB: HELD, ACCORDINGLY, DISMISSING THE APPEAL, THAT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVING DECIDED THE ISSUE IN ACCORDANCE WITH THE STATUTORY PROVISIONS, IT REQUIRED NO INTERFERENCE. 49 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. 10. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GIRISH CHAUDHARY, 163 TAXMAN 608 IN THE HEAD-NOTE HELD UNDER CHAPTER XIVB, BEFORE AN ADDITION OF AN UNDISCLOSED INCOME CAN BE MADE, THE AO HAS TO BRING ON RECORD THE MATERIAL TO SHOW THAT ON EVIDENCE FOUND AS A RESULT OF SEARCH, THERE IS AN UNDISCLOSED INCOME REPRESENTED BY CREDITS APPEARING IN THE BOOKS OF ACCOUNT. IN THE INSTANT CASE, THERE WAS NO MATERIAL ON RECORD TO SHOW AS TO WHAT ON BASIS THE AO REACHED T HE CONCLUSION THAT THE FIGURE 48 WAS TO BE READ AS RS.48 LAKHS. THE DOCUMENT RECOVERED DURING THE COURSE OF SEARCH IN THE INSTANT CASE WAS A DUMB DOCUMENT. THUS, THE TRIBUNAL RIGHTLY DELETED THE ADDITION MADE BY AO ON ACCOUNT OF UNDISCLOSED INCOME ON THE BASIS OF SEIZED MATERIAL. 6.12. THE HONBLE M.P. HIGH COURT IN THE CASE OF C IT VS. KHUSHAL CHAND NIRMAL KUMAR 263 ITR 352 (MP) HELD TH AT INVESTMENT IN CONSTRUCTION, THE ADDITION CANNOT BE MADE ON THE BASIS OF THE DEPARTMENTAL VALUATION REPORT OBTAINED 50 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. SUBSEQUENT TO ORDER OF REGULAR ASSESSMENT. THE TRIB UNAL FINDING NO EVIDENCE DURING SEARCH TO ESTABLISH ASSE SSEE SPENT MORE IN RENOVATING OF RESIDENTIAL HOUSE THEN RECORD ED IN THE BOOKS OF ACCOUNT. THE ADDITION DELETED, JUSTIFIED. 7. THE A.O. CONSIDERED THE ISSUE OF SPECULATION LO SSES IN DETAIL IN THE ASSESSMENT ORDER AND OBSERVED THAT SUBSEQUENT TO THE SEARCH ENQUIRIES, IT WAS FOUND THAT ASSESSEE BEING INVESTMENT COMPANY IS CLOSELY LINKED WITH THE MODY GROUP OF COMPANIES AND HAS BEEN FACILITATING THE PLOUGHING B ACK OF UNDISCLOSED INCOME OF THE FLAGSHIP COMPANY OF MODY GROUP OF COMPANIES NAMELY HDC IN THE GARB OF SPECULATION PRO FIT THROUGH AN ARRANGED SPECULATIVE SHARE TRANSACTIONS ROUTED THROUGH A RELIABLE STOCK BROKER OF THE FLAGSHIP COM PANY. THE A.O. ULTIMATELY AFTER CONSIDERING THE MODUS OPERANDI AND ON PERUSAL OF THE MATERIAL ON RECORD, CAME TO THE FIND ING THAT SPECULATION LOSSES SUFFERED BY THE ASSESSEE-COMPANY IN A.YS. 1993-94 AND 1994-95 FROM M/S. RAHUL AND COMPANY, SH ARE BROKER IS NOTHING BUT A SHAM TRANSACTION. THEREFORE , TOTAL SPECULATION LOSSES IN BOTH THE YEARS IN A SUM OF RS .1,94,18,750 51 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. WAS DISALLOWED BY CONSIDERING IT TO BE UNDISCLOSED INCOME OF THE ASSESSEE-COMPANY. THE LEARNED COUNSEL FOR THE ASSES SEE, HAS HOWEVER REFERRED TO VARIOUS DOCUMENTS IN THE PAPER BOOK WHICH ARE COPIES OF THE COMPUTATION OF INCOME, P & L A/C, ANNUAL REPORTS AND ACCOUNTS OF BOTH THE YEARS IN QUESTION WHICH WERE FILED WITH THE ORIGINAL RETURN OF INCOME. IN ALL TH E DETAILS FILED WITH THE ORIGINAL RETURN OF INCOME, ASSESSEE-COMPAN Y HAS CLEARLY DISCLOSED AS TO HOW THE ASSESSEE-COMPANY HA S EARNED PROFIT WHILE DEALING IN SHARES AND SECURITIES AND O N EARNING THE PROFITS IN SOME ITEMS, THE ASSESSEE-COMPANY SUFFERE D LOSSES ALSO. THE ASSESSMENTS FOR BOTH THE YEARS WERE SUBJE CTED TO SCRUTINY ASSESSMENT AND THE A.O. ISSUED QUESTIONNAI RE TO THE ASSESSEE-COMPANY WHICH WERE DULY REPLIED AND THE A. O. ON EXAMINATION OF THE BOOKS OF ACCOUNT AND MATERIAL ON RECORD, ACCEPTED THE GENUINENESS OF THE SPECULATION LOSSES SUFFERED BY ASSESSEE-COMPANY IN BOTH THE ASSESSMENT YEARS. THE ASSESSMENTS FOR A.YS. 1993-94 AND 1994-95 WERE ACCO RDINGLY FRAMED UNDER SECTION 143(3) ON 25.01.1995 AND 28.11 .1995. COPIES OF ALL THE MATERIAL FILED BEFORE A.O. AT THE ORIGINAL 52 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. ASSESSMENT STAGE AND ASSESSMENT ORDER ARE FILED IN THE PAPER BOOK. IT THEREFORE, CLEARLY REVEALED THAT ASSESSEE- COMPANY DISCLOSED THE INCURRING OF THE SPECULATION LOSSES I N BOTH THE YEARS TO THE REVENUE DEPARTMENT, PRIOR TO THE DATE OF SEARCH AND IN THE SCRUTINY ASSESSMENT, THE SAME SPECULATIO N LOSSES HAVE BEEN ACCEPTED BY THE REVENUE DEPARTMENT WHICH IS ALSO PRIOR TO THE DATE OF SEARCH. THEREFORE, THERE IS NO QUESTION OF CONSIDERING IT TO BE THE UNDISCLOSED INCOME AS PER CHAPTER- XIVB OF THE I.T. ACT AND THERE IS NOTHING ON RECORD WHICH PROVED THAT ASSESSEE-COMPANY HAS NOT BEEN OR WOULD NOT HAV E BEEN DISCLOSED THE SPECULATION LOSSES FOR THE PURPOSE OF THIS ACT. THEREFORE, THE PRIMARY CONDITION OF CHAPTER-XIVB OF THE I.T. ACT HAVE NOT BEEN SATISFIED IN THIS CASE. THE COPIES OF THE SEIZED DOCUMENTS ARE FILED AT PAGES 215 TO 222 OF THE PAPE R BOOK WHICH ARE HAVING THE DATES OF YEAR OF 1996 AND DID NOT RE VEAL IF ASSESSEE-COMPANY HAS RECEIVED ANY SPECULATION LOSS FROM ANY BROKER. THEREFORE, THE ENTRIES CONTAINED IN SEIZED PAPER DO NOT PERTAIN TO THE ASSESSEE-COMPANY AND THUS, THE CONTE NTS OF THESE DOCUMENTS CANNOT BE USED AGAINST THE ASSESSEE - 53 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. COMPANY. THE A.O. MADE ADDITION BY DISALLOWING SPEC ULATION LOSSES IN A.YS. 1993-94 AND 1994-95 WHEREAS THE SEI ZED PAPER PERTAIN TO THE YEAR 1996, THERE IS NO QUESTION OF C ONSIDERING IT TO BE SHAM TRANSACTION IN PRIOR A.YS. 1993-94 AND 1 994-95. THESE SEIZED PAPER ARE NOT FOUND FROM POSSESSION OF ASSESSEE- COMPANY. THE A.O. MERELY INFERRED FROM THE DOCUMENT S THAT SINCE GROUP COMPANIES WERE INDULGED IN SYPHONING TH E PROFITS, THEREFORE, ASSESSEE-COMPANY MIGHT HAVE ALSO INDULGE D IN TAKING THE SPECULATION LOSSES. THE ASSESSEE-COMPANY EXPLAI NED THAT HDC IS NOT A FLAGSHIP COMPANY BECAUSE ASSESSEE-COMP ANY IS MERELY A SHARE HOLDER. SHRI V.C. MEHTA ALSO IN HIS STATEMENT EXPLAINED THAT ASSESSEE-COMPANY HAS NO RELATION WIT H M/S. HDC LIMITED EXCEPT THAT IT IS A SHAREHOLDER OF M/S. HDC LIMITED. THEREFORE, ON MERE PRESUMPTION SUCH AN ADD ITION COULD NOT BE MADE IN THE BLOCK PERIOD. IT MAY ALSO BE NOTED THAT THE A.O. HEAVILY RELIED UPON THE STATEMENTS OF SHRI SHISHIR KEJRIWAL, SHRI DINESH KUMAR SINGHANIA AND SHRI V.C. MEHTA WHICH HAVE NOT BEEN RECORDED IN SEARCH PROCEEDINGS UNDER SECTION 132(4) OF THE I.T. ACT. THESE STATEMENTS HA VE BEEN 54 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. RECORDED EITHER UNDER SECTION 131 OF THE I.T. ACT O R UNDER SECTION 133A OF THE I.T. ACT I.E., AFTER POST-SEARC H AT ASSESSMENT STAGE OR IN SURVEY PROCEEDINGS ON DATED 20.01.1997, 26.02.1997, 26.11.1997. THE STATEMENT OF SHRI A.M. LODHA WAS RECORDED ON 21.11.1996 UNDER SECTION 132 OF THE ACT AND HE HAS BEEN SHOWN THE SEIZED PAPER TO WHICH HE EXPLAIN ED THAT THESE ARE SOME PROPOSED ENTRIES TO BE TAKEN FROM TH E MARKET BUT THERE IS NO REFERENCE TO THE ASSESSEE-COMPANY. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, RIGHTLY CONTEN DED THAT THEIR STATEMENTS CANNOT BE READ IN EVIDENCE AGAINST THE A SSESSEE- COMPANY BECAUSE NO EVIDENCE HAS BEEN BROUGHT ON REC ORD TO HAVE ANY CONNECTION WITH THE STATEMENTS OF THESE PE RSONS. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO RIGHTLY H IGHLIGHTED THAT THERE IS A DISTINCTION BETWEEN THE STATEMENTS RECORDED UNDER SECTION 132(4) OF THE I.T. ACT AND UNDER SECT IONS 131 OR 133A OF THE I.T. ACT, BECAUSE THE STATEMENTS RECORD ED UNDER SECTIONS 131 AND 133A OF THE I.T. ACT, MAY NOT BE R ELEVANT IN BLOCK PERIOD UNLESS THESE ARE RELATABLE TO MATERIAL FOUND DURING THE COURSE OF SEARCH AGAINST THE ASSESSEE-COMPANY. SINCE THERE 55 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. IS NO REFERENCE TO THE ASSESSEE-COMPANY IN ANY OF T HE SEIZED DOCUMENTS, THEREFORE, THERE IS NO QUESTION OF RELYI NG UPON STATEMENTS OF THESE PERSONS WHICH ARE NOT BASED ON ANY SEARCH MATERIAL FOUND DURING THE COURSE OF SEARCH. THE STA TEMENT RECORDED UNDER SECTION 132(4) OF THE ACT, CAN BE US ED IN EVIDENCE OF MAKING BLOCK ASSESSMENT ORDER ONLY IF T HE SAID STATEMENT IS MADE IN THE CONTEXT OF OTHER EVIDENCE OR MATERIAL DISCOVERED DURING THE SEARCH. THE STATEMENT OF A PE RSON, WHICH IS NOT RELATABLE TO ANY INCRIMINATING DOCUMENT OR M ATERIAL FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERA TION CANNOT, BY ITSELF INITIATE THE BLOCK ASSESSMENT. THE UNDISC LOSED INCOME OF THE ASSESSEE-COMPANY HAS TO BE COMPUTED ON THE B ASIS OF THE EVIDENCE AND MATERIAL FOUND DURING SEARCH. THE STAT EMENTS RECORDED UNDER SECTION 132(4) OF THE ACT, MAY ALSO BE USED FOR MAKING THE ASSESSMENT, BUT ONLY TO THE EXTENT IT IS RELATABLE TO THE INCRIMINATING EVIDENCE/MATERIAL UNEARTHED OR FO UND DURING THE COURSE OF SEARCH. IN OTHERWORDS, THERE MUST BE A NEXUS BETWEEN THE STATEMENT RECORDED AND EVIDENCE/MATERIA L FOUND DURING THE COURSE OF SEARCH IN ORDER TO FOR AN ASSE SSMENT TO BE 56 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. BASED ON THE STATEMENT RECORDED. SINCE NO INCRIMINA TING MATERIAL/EVIDENCE WAS FOUND DURING THE COURSE OF SE ARCH SO AS TO DISALLOW SPECULATION LOSSES, THE STATEMENTS OF O THER PERSONS RECORDED ABOVE BY THE A.O. AND REFERRED IN THE ASSE SSMENT ORDER WOULD NOT BE USED FOR MAKING AN ADDITION BECAUSE TH E SAME ARE NOT RELATABLE TO ANY EVIDENCE FOUND DURING THE COUR SE OF SEARCH. LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, RIGHTL Y RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF HARJEEV AGGARWAL (SUPRA). IT MAY ALSO BE NOTED HERE THAT NOTHING IS BROUGHT ON RECORD, WHETHER THE A.O. AT THE ASSES SMENT STAGE HAS ALLOWED CROSS-EXAMINATION TO SUCH STATEMENTS O N BEHALF OF THE ASSESSEE-COMPANY. THEREFORE, SUCH STATEMENTS HA VE OTHERWISE BEEN CANNOT BE READ IN EVIDENCE AGAINST T HE ASSESSEE- COMPANY. IT IS ALSO BROUGHT ON RECORD THAT ULTIMATE LY THE PERSONS WHO MADE THE STATEMENTS AFTER THE SEARCH HA VE RETRACTED FROM THEIR STATEMENTS BY FILING AFFIDAVIT S AND THEIR STATEMENTS HAVE BEEN RECORDED THEREAFTER. BUT A.O. DID NOT DISCUSS ANYTHING ON THIS ASPECT IN THE ASSESSMENT O RDER. THEREFORE, ON TOTALITY OF THE FACTS AND CIRCUMSTANC ES OF THE CASE 57 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. WOULD CLEARLY REVEAL THAT THERE WERE NOTHING ON REC ORD TO DISALLOW THE SPECULATION LOSSES SUFFERED BY ASSESSE E-COMPANY IN BLOCK ASSESSMENT BECAUSE IT WAS ACCEPTED BY THE REVENUE DEPARTMENT IN SCRUTINY ASSESSMENTS PRIOR TO THE DAT E OF SEARCH. THE DECISIONS RELIED UPON BY LD. D.R. WOULD NOT SUP PORT THE CASE OF THE REVENUE. CONSIDERING THE TOTALITY OF TH E FACTS AND CIRCUMSTANCES OF THE CASE, IT IS CLEAR THAT ASSESSE E-COMPANY DID NOT EARN ANY UNDISCLOSED INCOME ON ACCOUNT OF THE S PECULATION LOSSES IN BLOCK ASSESSMENT UNDER CHAPTER-XIVB OF TH E I.T. ACT, 1961. THEREFORE, THE A.O. WAS NOT JUSTIFIED IN MAKI NG THE ADDITIONS OF RS.1,11,00,000 AND RS.83,18,750 TOTALI NG TO RS.1,94,18,750. THE ENTIRE ADDITION, THEREFORE, STA NDS DELETED. 8. AS REGARDS ADDITION OF RS.65,609 ON ACCOUNT OF DIFFERENCE IN VALUATION AS REPORTED BY THE ASSESSEE -COMPANY AND COMPUTED BY THE VALUATION OFFICER, IT IS CLEAR THAT NO INCRIMINATING MATERIAL OR EVIDENCE WAS FOUND DURING THE COURSE OF SEARCH SO AS TO INDICATE ANY UNACCOUNTED INVESTM ENT IN THE PROPERTY. THE REFERENCE TO THE DVO WAS MADE AFTER T HE SEARCH WHICH COULD NOT BE CONSTRUED AS INCRIMINATING MATER IAL OR 58 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. DOCUMENT FOUND DURING THE COURSE OF SEARCH. THEREFO RE, SUCH ADDITION ALSO COULD NOT BE MADE IN THE BLOCK ASSESS MENT. THE ADDITION OF RS.65,609 IS ACCORDINGLY, DELETED. 9. WITH THE ABOVE CONCLUSION AND REASONINGS, WE SE T ASIDE THE BLOCK ASSESSMENT ORDER AND DELETE THE ENT IRE ADDITIONS. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED DECEMBER, 2017 VBP/- COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT B BENCH, DELHI 6. GUARD FILE. 59 IT(SS)A.NO.325/DEL./1997 M/S. PROMAIN LIMITED NEW DELHI. //BY ORDER // ASST. REGISTRAR, ITAT, DELHI BENCHES DELHI.