Appeal Details
Counselvise Citation
[2011] 124 COUNSELVISE.COM (IT) 7943 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
6 year(s) 11 month(s) 17 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
25-11-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
L
Assessment Year
misc
Appeal Filed On
08-12-2004
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI B.RAMAKOTAIA H (A.M) IT(SS)A 645/MUM/2004 (BLOCK PERIOD 01/04/1987 TO 18.12.1997) SHRI HOMI R. PATEL, C/O. HEATSHRINK TECHNOLOGIES LTD., PLOT NO.112, 13 TH ROAD, MIDC, MAROL NAKA, ANDHERI (EAST), MUMBAI 93. PAN: (APPELLANT) VS. THE D.C.C.C 36, 704, C-10, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 51. (RESPONDENT) APPELLANT BY : MR.PRADEEP KAPASI, C.A. RESPONDENT BY : MRS.MALATHI SRIDHARAN CIT (DR) DATE OF HEARING : 18.11.2011 DATE OF PRONOUNCEMENT : 25/11/2011 ORDER PER N.V.VASUDEVAN, J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DT.24.09.2004 OF CIT(A) VIII, MUMBAI, RELATING TO BLOCK PERIOD 1.4.1 987 TO 18.12.1997. 2. THE ASSESSE IS AN INDIVIDUAL. THE ASSESSEE CLA IMS THAT HE IS A NON- RESIDENT INDIAN RESIDING IN U.S.A. HE CLAIMS THAT AFTER COMPLETING HIS INTERMEDIATE SCIENCE IN MUMBAI, HE LEFT FOR U.S.A F OR FURTHER STUDIES IN 1963. SINCE THEN HE CONTINUES TO BE AN NRI TILL DA TE. HE CLAIMS TO HAVE ACQUIRED A DEGREE IN CHEMICAL ENGINEERING FROM THE UNIVERSITY OF CALIFORNIA IN THE YEAR 1967. HE CLAIMS THAT HE WAS THEREAFTER EMPLOYED WITH VARIOUS CORPORATIONS IN U.S.A FROM TIME TO TIME AND WAS IN EMPLOYMENT TILL 1992. HE CLAIMS THAT HE HAS BEEN REGULARLY FILING RETURN OF INCOME IN U.S.A AND IS ASSESSEE TO TAX UNDER THE US TAX LAWS. HE CLAIMS T HAT HE HAS A PERMANENT PLACE OF RESIDENCE IN U.S.A. IT IS HIS FURTHER CL AIM THAT DURING THE YEAR 1980 OR THEREABOUT, HE SET UP REPL ENGINEERING LTD. , A COMPANY INCORPORATED IN INDIA WITH THE HELP OF SHRI B.S.DOC TOR AND SHRI CHETAN MANIAR ON HIS VISIT TO INDIA. HE BECAME A SHAREHOL DER OF THAT COMPANY AND IT(SS)A 645/MUM/2004 2 ALSO A DIRECTOR OF THE COMPANY. SINCE THAT YEAR, H E CONTINUED TO VISIT INDIA REGULARLY EVERY YEAR FOR THE PURPOSES OF THE BUSINE SS OF THE COMPANY UPTO JUNE, 1998. HE HAS NOT VISITED INDIA SINCE THEN AN D IS PRESENTLY RESIDING IN U.K. IN THE YEAR 1992 HE WAS ELEVATED TO THE POST OF MANAGING DIRECTOR OF THE SAID REPL ENGINEERING LTD. HE WAS DRAWING SALA RY FROM REPL ENGINEERING LTD. FROM THE YEAR 1992 TO 1997. ACCOR DING TO THE ASSESSEE, HE HAS NO OTHER SOURCE OF INCOME FROM INDIA AND DOES N OT HAVE ANY SIZABLE INVESTMENTS IN INDIA. HE IS MARRIED TO SMT. ROSHAN PATEL WHO IS RESIDING WITH HIM IN UK. IT IS HIS CLAIM THAT WHILE IN INDI A, HE HAPPENED TO RESIDE IN A FLAT IN THE BUILDING NAME MARBLE ARCH AT MUMBAI 4 00 036. THE SAID FLAT IS OWNED BY A TRUST SETTLED BY THE FATHER OF HIS WIFE WHEREIN SHE IS A BENEFICIARY. IT IS ALSO RELEVANT TO MENTION HERE T HAT THE SEARCH ACTION IN THE CASE OF THE ASSESSEE WAS INITIATED BECAUSE THE REVE NUE HAD REASON TO BELIEVE THAT THE COMPANY REPL ENGINEERING LTD., WAS CLAIMING BOGUS DEPRECIATION ON NON EXISTENT ASSETS AND WHERE THE T RANSACTIONS WERE ONLY PAPER TRANSACTIONS. SINCE THE ASSESSEE WAS MANGING DIRECTOR OF REPL ENGINEERING LTD., HE WAS ALSO SUBJECTED TO SEARCH. 3. A SEARCH AND SEIZURE ACTION UNDER THE PROVISIONS OF SEC.132 OF THE INCOME TAX ACT, 1961(THE ACT) TOOK PLACE AT THE ABO VE MENTIONED PREMISES I.E. MARBLE ARCH ON 18/12/1997. THE ASSESSEE WAS N OT IN INDIA WHEN THE SEARCH TOOK PLACE. THE WARRANT OF AUTHORISATION WA S IN THE NAME OF THE ASSESSEE. A NOTICE U/S 158BC OF THE CHAPTER XIVB OF THE ACT WAS ISSUED BY THE LEARNED ASSESSING OFFICER REQUIRING THE ASSESSE E TO FILE RETURN FOR THE BLOCK PERIOD. IT IS THE CLAIM OF THE ASSESSEE THAT AS HE WAS OUT OF INDIA, NO RETURN AS REQUESTED WAS FILED. THE MATTERS RELATIN G TO INCOME TAX IN INDIA WERE BEING LOOKED AFTER BY M/S. B.B.SHAH & ASSOCIAT ES, CHARTERED ACCOUNTANT UPTO APRIL, 1998. ON THEIR RESIGNATION T HE MATTERS WERE ENTRUSTED TO M/S.G.K.CHOKSHI & CO., WHO RESIGNED IN THE MONTH OF APRIL, 1999. SINCE THEN THE ASSESSEE WAS NOT REPRESENTED BY ANY ONE FOR THE MATTERS OF TAXATION UPTO JANUARY,2000. THE A.O PAS SED AN ORDER OF ASSESSMENT FOR THE BLOCK PERIOD 3/12/1999. IN THE SAID ORDER THE AO HAD REFERRED TO NOTICES FOR COMPLIANCE ON TWO OCCASIONS , ONE LETTER BY DATED IT(SS)A 645/MUM/2004 3 02/06/1999 AND AGAIN BY LETTER DATED 28/9/1999. TH ESE NOTICES ACCORDING TO THE ASSESSEE WERE NOT RECEIVED BY ANY OF THE PER SONS AUTHORISED TO RECEIVE THE SAID NOTICES. 4. THE ASSESSMENT YEARS COMPRISED IN THE BLOCK PER IOD WAS 1988-89 TO AY 98-99. THE AO DETERMINED UNDISCLOSED INCOME FOR TH E VARIOUS ASSESSMENTS COMPRISED IN THE BLOCK PERIOD AS FOLLOWS: A.Y.1988-89 UNDISCLOSED FOREIGN INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- A.Y. 1989-90 UNDISCLOSED INCOME ESTIMATED AR RS. 1 CRORE 1,00,00,000/- A.Y. 1990-91 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- A.Y. 1991-92 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- A.Y. 1992-93 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- ADDITION ON A/C. OF SEIZED LOOSE PAPER NO.11 AS DISCUSSED ABOVE. 1,92,00,000/- 2,92,00, 000/- A.Y. 1993-94 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- A.Y. 1994-95 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- ADDITION ON ACCOUNT OF SEIZED LOOSE PAPER NO.1DT.12 .7.93 AS DISCUSSED ABOVE (RS.1,30,00,000/- + RS. 13,00,00 0/-) 1,43,00,000/- ADDITION ON A/C. OF SEIZED LOOSE PAPER NO.9 & 19 AS DISCUSSED ABOVE. 39,00,000/- 2,82,00,0 00/- A.Y. 1995-96 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- ADDITION ON A/C. OF SEIZED LOOSE PAPER NO. 9 & 19 A S DISCUSSED ABOVE. 21,00,000/- 1,21,00,0 00/- A.Y. 1996-97 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- IT(SS)A 645/MUM/2004 4 ADDITION ON A/C. OF SEIZED LOSE PAPER NO.21 & 22 AS DISCUSSED ABOVE. 75,00,000/- 1,75,00, 000/- A.Y. 1993-94 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- ADDITION ON A/C. OF SEIZED LOOSE PAPER 6 DT.5.3.97 AS DISCUSSED ABOVE. 1,00,000/- UNEXPLAIEND INVESTMENT IN ACQUISITION OF PROPERTIES ABROAD (USA & UK) 20,00,00,000/- 21,01,00,0 00/- A.Y. 1993-94 UNDISCLOSED INCOME ESTIMATED AT RS. 1 CRORE 1,00,00,000/- ADDITION ON A/C. OF SEIZED LOOSE PAPER NO.16 AS DIS CUSSED ABOVE. 75,25,000/ - ADDITION ON ACCOUNT OF UNEXPLAINED CASH 53,500/- ADDITION ON ACCOUNT OF UNEXPLAINED JEWELLERY 41,500/- ADDITION ON ACCOUNT OF UNEXPLAINED INVESTMENT IN ELECTRONIC GOODS , AC ETC. 5,00,000/- 1,23,20,0 00/- TOTAL UNDISCLOSED INCOME IS SUMMARISED AS UNDER: A.Y. 1988-89 1,00,00,000/- A.Y. 1989-90 1,00,00,000/- A.Y.1990-91 1,00,00,000/- A.Y.1991-92 1,00,00,000/- A.Y. 1992-93 2,92,00,000/- A.Y.1993-94 1,00,00,000/- A.Y. 1994-95 2,82,00,000/- A.Y. 1995-96 1,21,00,000/- A.Y.1996-97 1,75,00,000/- A.Y. 1997-98 21,01,00,000/- A.Y. 1998-99 1,23,20,000/- UNDISCLOSED INCOME 35,94,20,000/- ============= 5. ON APPEAL BY THE ASSESSEE THE CIT(A) REDUCED THE ADDITION OF RS.20 CRORES MADE BY THE AO IN AY 97-98 ON ACCOUNT OF UNE XPLAINED INVESTMENT IN ACQUISITION OF PROPERTIES ABROAD (USA & UK) TO R S.10 CRORES. THE ADDITION ON ACCOUNT OF UNEXPLAINED CASH MADE BY THE AO IN AY 98-99 OF RS.53,500 WAS REDUCED TO RSS. 28,500/-. IN RESPECT OF THE OTHER ADDITIONS, IT(SS)A 645/MUM/2004 5 THE CIT(A), CONFIRMED THE ORDER OF THE AO. AGGRIEV ED BY THE ADDITIONS SUSTAINED BY THE CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. AS WE HAVE ALREADY SEEN THERE WAS NO PR OPER COMPLIANCE WITH THE VARIOUS REQUIREMENTS/QUERIES RAISED BY THE AO IN TH E COURSE OF ASSESSMENT PROCEEDINGS. BEFORE CIT(A), THE ASSESSEE HAD FILED SEVERAL DOCUMENTS. REMAND REPORTS WERE OBTAINED BY THE CIT(A) FROM THE AO. THE CIT(A) AFTER CONSIDERING THE EVIDENCE FILED BEFORE HIM HAD PASSE D ORDERS. THEREFORE THE FINDINGS OF THE CIT(A) WOULD REQUIRE CONSIDERATION IN THIS APPEAL. 6. THE ASSESSEE HAS RAISED IN ALL ABOUT 17 GROUNDS OF APPEAL. GR.NO.1, 4 , 14, 15 (REGARDING INTEREST LEVY U/S.158BF OF THE ACT), 16 & 17 ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICAT ION. GR.NO.2 RELATES TO THE STATUS OF THE ASSESSEE UNDER THE ACT, WHETHER H E IS A RESIDENT NON- RESIDENT OR NOT ORDINARY RESIDENT. THIS GROUND W OULD REQUIRE TO BE CONSIDERED ONLY IF THE ADDITIONS MADE ARE FOUND TO BE OTHERWISE SUSTAINABLE. GROUND NO.3 RELATING TO THE CLAIM OF THE ASSESSEE R EGARDING BENEFITS UNDER THE DTAA WITH USA WOULD REQUIRE CONSIDERATION ONLY IF THE ADDITIONS MADE ARE FOUND TO BE OTHERWISE SUSTAINABLE. 7. THE SEIZED DOCUMENTS BASED ON WHICH THE VARIOUS ADDITIONS CHALLENGED IN THESE APPEALS WERE MADE ARE ONLY 8 IN NUMBER. THEY ARE ANNEXED AS ANNEXURE TO THIS ORDER. THE NATURE OF S OME OF THESE SEIZED DOCUMENTS WOULD BE MATERIAL FOR DECIDING THE VARIOU S GROUNDS. 1. PAGES -13 AND 14 OF A-1 IS A DRAFT LETTER FROM THE ASSESSEE. IT IS NOT ADDRESSED TO ANYBODY. IT BEARS DATE MARCH, 1994. IT HAS THE SUBJECT UNDERSTANDING BETWEEN RADHA IYENGAR AND IFE. THE LETTER REFERS TO THE TERMS OF UNDERSTANDING BETWEEN RADHA IYENGAR AN D IFE REGARDING HER PAY POCKETS AND NATURE OF HER DUTIES AND SOME B USINESS PLANS. THERE ARE SOME OPTIONS LISTED OUT IN THE LETTER AND THE LETTER FINALLY SAYS THAT IN THE WEEK OF 17 TH APRIL, A DECISION ON WHICH OPTION WILL HAVE MORE CHANCE TO SUCCEED CAN BE DETERMINED. 2. PAGE-19 IS A BLANK LETTER HEAD OF A COMPANY BY NAME SIGMA TECHNICAL COMPANY HAVING ADDRESS 26, ALEXANDER STR EET, LONDON W@ 5NT, U.K. 3. PAGE-20 IS A BLANK INVOICE OF A COMPANY BY NAME CO NSOLIDATED UNIVERSAL INC HAVING OFFICE AT 30, MARKSBURY AVENU E, KEY, SURREY TW9 4JF ENGLAND. IT(SS)A 645/MUM/2004 6 4. PAGE-20-21 IS AN UNDERSTANDING BETWEEN ONE BIPIN TH AKKAR AND HOMI PATEL (THE ASSESSEE). THE UNDERSTANDING IS WITH RE FERENCE TO PROFITS FROM A BUILDING SAGAR WHERE A COMPANY BY NAME M/S .INTERNATIONAL FOOD ENTERPRISES, IFE A COMPANY INCORPORATED AND RE GISTERED IN USA WAS CARRYING ON A RESTAURANT BY NAME NATRAJA. 5. PAGE27 & 28 IS A LETTER DT.13.5.1996 TO JAMESHED PA TEL, NOSHIR PATEL AND KEKI MISTRY FROM THE ASSESSEE REGARDING TAX IMP LICATIONS OF SALE OF PROPERTY AT CALIFORNIA. 6. PAGE-11 IS A LIST OF SHAREHOLDING, SHOWING THE ASSE SSEE AND HIS FAMILY MEMBERS BEING SHAREHOLDERS. THERE IS NO REFERENCE TO THE COMPANY IN WHICH THEY ARE SHAREHOLDERS. 7. PAGE-16 IS A LIST OF NAMES AND SOME NUMERICALS. AC CORDING TO THE ASSESSEE THE LIST OF NAMES AND THE NUMBERS FOUND TH EREIN REPRESENTS SHARES HELD BY SOME PERSONS IN A WINDMILL POWER GEN ERATION COMPANY IN SOUTH INDIA, WHICH COMPANY WAS PROPOSED TO BE AC QUIRED BY THE ASSESSEE BUT THE PROPOSAL DID NOT FRUCTIFY. 8. WITH THIS BACKGROUND, WE WILL TAKE UP FOR CONSID ERATION THE GROUNDS OF APPEAL VIZ., GR.NO.5, 7 AND 8. GROUND NO.5, 7 A ND 8 RAISED BY THE ASSESSEE READS AS FOLLOWS: 5. ADDITION OF RS. 11,00,00,000/- - RS. 1,00,00,00 0/- ANNUALLY FOR A PERIOD OF 11 YEARS (PARA 38 TO 41 OF CIT(A)S OR DER & PARA 15 OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 11 CRORES ON THE GROUND THAT THE AP PELLANT HAD EARNED SUCH INCOME OUTSIDE INDIA, WITHOUT THERE BEING ANY PROOF OF WHATSOEVER NATURE. (B) YOUR APPELLANT SUBMITS THAT HE HAD NOT EARNED A NY INCOME OUTSIDE INDIA OF ANY NATURE AS ALLEGED AND HELD BY THE LEAR NED ASSESSING OFFICER FOR ANY OF THE ABOVE MENTIONED YEARS. FURTH ER, IN THE ALTERNATIVE WITHOUT PREJUDICE, YOUR APPELLANT ALSO SUBMITS THAT HIS STATUS WAS THAT OF A NON RESIDENT SUCH INCOME EVEN IF EARNED WAS NOT LIABLE TO TAX IN INDIA. (C) YOUR APPELLANT PRAYS FOR THE DELETION OF RS. 11 ,00,00,000/- SO ADDED WITHOUT ANY MATERIAL OR EVIDENCES. 7. ADDITION OF RS. 75,00,000/- ON ACCOUNT OF ALLEGE D SALE OF PREMISES AT CALIFORNIA, USA OWNED BY IFE INC. (PARA 56 TO 62 OF C1T(A)S ORDER & PARA 14 OF ASSESSMENT ORDER) IT(SS)A 645/MUM/2004 7 (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 75,00,000/- ON ACCOUNT OF ALLEGED S ALE OF PREMISES BY IFE INC., A COMPANY REGISTERED IN USA, AT SANTA CLA RA. CALIFORNIA, USA WHEREIN YOUR APPELLANT WAS A DIRECTOR. (B) YOUR APPELLANT SUBMITS THAT THE ENTIRE ADDITION HAS BEEN MADE WITHOUT ANY BASIS AND IN ANY CASE WITHOUT PREJUDICE SUBMITS THAT THE ALLEGED TRANSACTION WAS OUTSIDE THE BLOCK PERIOD. (C) YOUR APPELLANT PRAYS THAT THE SAID ADDITION OF RS. 75,00,000/- BE DELETED. 8. ADDITION OF RS. 10,00,00,000/- ON ACCOUNT OF ALL EGED INVESTMENT IN IMMOVABLE PROPERTY AT CALIFORNIA, USA(PARA 68 TO 71 OF CIT(A)S ORDER & PARA 7 & S OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION OF RS. 10,00,00,000/- PERTAINING TO ALLEGE D INVESTMENTS MADE BY YOUR APPELLANT IN AN IMMOVABLE PROPERTY SITUATED IN CALIFORNIA, USA. (B) YOUR APPELLANT SUBMITS THAT THE SAID PREMISES W ERE INHERITED BY THE APPELLANT IN TRUST OUT OF THE ESTATE HIS GRAND FATHER WHO HAD PURCHASED IT IN THE YEAR 1944 AND NO INVESTMENT OF WHATSOEVER NATURE WAS MADE BY YOUR APPELLANT AND IN ANY CASE T HE SAID PROPERTY DID NOT REPRESENT ANY UNDISCLOSED INCOME OF YOUR A PPELLANT FOR THE BLOCK PERIOD. (C) YOUR APPELLANT PRAYS THAT SUCH ADDITION OF RS. 10,00,00,000/- HE DELETED. 9. THESE FACTS RELEVANT TO GR.NO.5 REFERRED TO ABOV E ARE AS FOLLOWS: ACCORDING TO THE AO, THE STATUS OF THE ASSESSEE AS FAR AS THE INCOME TAX ACT, 1961 (THE ACT) IS CONCERNED WAS RESIDENT AND THEREFORE THE ASSESSEES ENTIRE GLOBAL INCOME WAS LIABLE TO BE TA XED IN INDIA. THE CLAIM OF THE ASSESSEE WAS HOWEVER THAT HE WAS A NON-RESIDEN T AND THEREFORE ONLY INCOME WHICH ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE IN INDIA ALONE CAN BE BROUGHT TO TAX UNDER THE INCOME TAX ACT, 196 1(THE ACT). THE AO BASED ON SOME OF SEIZED DOCUMENTS WAS OF THE VIEW T HAT THE ASSESSEE OWNED PROPERTIES ABROAD AND HAD BUSINESS INTEREST IN RUNN ING RESTAURANTS ABROAD. ACCORDING TO HIM, THE ASSESSEE WAS BOUND TO EXPLAIN THE SOURCE OF FUNDS FOR ACQUIRING THOSE PROPERTIES AND MAKING INVESTMENTS I N VARIOUS BUSINESS VENTURES. SINCE THE ASSESSEE DID NOT FURNISH ANY E XPLANATION, THE AO WAS OF THE VIEW THAT AN ESTIMATION OF THE ASSESSEES FOREI GN INCOME HAD TO BE MADE. IT(SS)A 645/MUM/2004 8 HE WAS OF THE VIEW THAT TAKING AN OVERALL VIEW OF T HE LARGE SCALE TAX EVASION THROUGH PAPER TRANSACTIONS IN WINDMILLS AND ALSO LO OKING TO THE MAGNITUDE OF THE FOREIGN CURRENCY HANDLED BY THE ASSESSEE, AN ESTIMATE OF UNDISCLOSED INCOME AT RS.1 CRORE EACH FOR THE PREVIOUS YEARS FA LLING IN THE BLOCK PERIOD WAS MADE BY THE AO. THUS A SUM OF RS. 11 CRORES WA S MADE AT RS.1 CRORE FOR AY 1988-89 TO 98-99. THUS THIS ADDITION WAS MA DE ON A GENERAL REFERENCE TO SEIZED MATERIAL. 10. AS FAR AS GROUND NO.7 IS CONCERNED, THE ADDITIO N WAS MADE ON THE BASIS OF SEIZED DOCUMENTS PAGES 21 AND 22 OF A1. A CCORDING TO THE AO THE SEIZED DOCUMENT EVIDENCED US $ 2 LACS RECEIVED BY T HE ASSESSEE FROM A COMPANY BY NAME INTERNATIONAL FOOD ENTERPRISE (IFE) WHICH IN TURN GOT THE SAID SUM FROM ONE MR.MARK. THE SAID SUM ACCORDING TO THE AO HAS BEEN SHARED BETWEEN THE ASSESSEE AND THAKAR AND THE ASSE SSEE RECEIVED US $ 166000 BESIDES US $ 8000 OWED BY MR.THAKKAR TO THE ASSESSEE. THUS A SUM OF RS.75 LACS BEING EQUIVALENT OF US $200000 WA S ADDED TO THE TOTAL INCOME OF THE ASSSESSEE RELEVANT TO AY 96-97. 11. AS FAR AS GR.NO.8 IS CONCERNED, THE ADDITION WA S MADE BASED ON PAGE 27 & 28 OF A-1. ACCORDING TO THE AO, THE SEIZED DO CUMENT EVIDENCED THE FACT THAT THE ASSESSEE OWNED PROPERTIES IN CALIFORN IA, USA. THE SAME WAS VALUED AT RS.10 CRORES BY THE AO. SINCE THE AO CON SIDERED THE ASSESSEE AS A RESIDENT FOR TAX PURPOSES, HE WAS OF THE VIEW THA T THE ASSESSEE WAS BOUND TO EXPLAIN THE SOURCE OF ACQUISITION OF THE AFORESA ID PROPERTY. SINCE THERE WAS NO EXPLANATION BY THE ASSESSEE, THE AO MADE AN ADDITION OF RS.10 CRORES BEING THE VALUE OF THE PROPERTY IN HIS ESTIM ATION. THE AO ALSO HELD THAT THE ASSESSEE OWNED PROPERTY IN UK AND THE SAME WAS VALUED AT RS.10 CRORES. THUS AN ADDITION OF RS.20 CRORES WAS MADE. 12. AS FAR AS GR.NO.5 IS CONCERNED, THE ASSESSEE SU BMITTED BEFORE CIT(A), THAT PAPER A-1 PAGES 13 AND 14, WERE BUSINESS PROPO SALS AND THERE IS NOTHING TO SHOW EARNING OF ANY UNDISCLOSED INCOME B Y THE ASSESSEE. PAGES 19 AND 20 ARE BLANK LETTER HEADS OF TWO COMPANIES O NE INCORPORATED IN USA AND THE OTHER IN U.K. AND THE ASSESSEE DENIED ANY C ONNECTION WHATSOEVER IT(SS)A 645/MUM/2004 9 WITH THESE COMPANIES. ON PAGE-13 AND 14 OF THE SEI ZED DOCUMENT THE ASSESSEE SUBMITTED THAT A RESTAURANT IN U.S.A. NAME LY NATARAJA WAS OWNED BY INTERNATIONAL FOOD ENTERPRISE (IFE), A COM PANY INCORPORATED IN U.S.A. THE ASSESSEE WAS ONE OF THE SHAREHOLDER-DIRE CTOR OF THE SAID COMPANY SINCE 1970 OR THEREABOUT. THE SEIZED DOCUMENT REFER S TO BUSINESS PLAN AND UTILISATION OF SERVICES OF ONE EMPLOYEE MRS.RADHA I YENGAR. THE INCOME OF THE COMPANY IS TAXABLE IN THE HANDS OF THE COMPANY IN U.S.A. THE ASSESSEE WAS NOT IN RECEIPT OF ANY INCOME FROM THE SAID COMP ANY OTHER THAN DIVIDEND. THE SAID COMPANY WAS MANAGED BY ONE MR.R USSEL HAYNES. THE ASSESSEE CLAIMED THAT THE COMPANY HAS CONSISTENTLY MADE LOSSES AND IN ANY CASE ITS INCOME IS NOT LIABLE TO TAX IN INDIA. IT WAS CLAIMED THAT NO MATERIAL OR EVIDENCE WHATSOEVER WAS SEIZED IN THE COURSE OF SEARCH TO INDICATE THAT THE ASSESSEE WAS IN RECEIPT OF ANY INCOME WHICH, WA S UNACCOUNTED, FROM THE SAID COMPANY. SIGMA TECHNICAL CO. IS A CONCERN S ITUATED IN U.K. THE ASSESSEE HAS NO RELATIONSHIP WITH THE SAID CONCERN OF WHATSOEVER NATURE. THE COMPANY REPL ENGG.LTD HAS IN THE PAST PURCHASED GOODS FROM THE SAID CONCERN. NO MATERA1 WHATSOEVER IS SEIZED TO IN DICATE THAT THE ASSESSEE WAS IN RECEIPT OF ANY INCOME FROM THE SAID COMPANY. M/S. CONSOLIDATED UNIVERSAL IS A COMPANY REGISTERED AND INCORPORATED IN LIBERIA BY THE TAIB BANK OF BAHARIN EC UNDER THE LAWS OF THAT COUNTRY . THE SAID COMPANY IS SUBJECTED TO THE LAWS OF THAT COUNTRY AND ITS INCOM E IS NOT TAXABLE IN INDIA. THE ASSESSEE HAS NO INTEREST WHATSOEVER IN THE SAID COMPANY. THE SAID COMPANY IS OWNED BY A FOREIGN BANK OF BEHARAIN. THE SAID COMPANY IS ONE OF THE SHAREHOLDERS OF REPL ENGINEERING LTD. AND IS HOLDING 19,20,000 SHARES COSTING RS. 1,92,00,000 WHICH INVESTMENT WAS MADE BY THE SAID COMPANY IN THE YEAR 1992-93 OUT OF ITS ACCOUNTED S OURCES. IN ANY CASE ITS A MATTER BETWEEN THE SAID COMPANY AND THE SAID REPI , AND THE ASSESSEE HAS NOTHING TO DO WITH THE SAME. FURTHER, THE ASSESSEE WAS NOT RECIPIENT OF ANY INCOME OF WHATSOEVER NATURE FROM THE SAID COMPANY. NO MATERIAL WAS SEIZED TO EVEN REMOTELY INDICATE RECEIPT OF ANY INC OME BY ASSESSEE FROM THE SAID COMPANY OR TO SHOW ANY CONNECTION BETWEEN THE ASSESSEE AND THE SAID COMPANY. IT(SS)A 645/MUM/2004 10 13. IT WAS FURTHER SUBMITTED THAT IN ORDER THAT AN INCOME IS BROUGHT TO TAX U/S. 113 AS UNDISCLOSED INCOME OF THE BLOCK PER IOD, IT IS NECESSARY FOR THE LEARNED A.O TO ESTABLISH THAT SUCH INCOME WAS I N THE NATURE OF UNDISCLOSED INCOME WITHIN THE MEANING OF THE TERM S AS DEFINED U/S. 158B(B) OF THE ACT. IT WAS ARGUED THAT ADDITION OF RS. 1 CRORE FOR EACH OF THE YEARS AGGREGATING RS.11 CRORES WAS ARBITRARY A ND AD-HOC WAS MADE WITHOUT ANY RESPECT FOR FACTS OR EVIDENCES AND WAS MADE WITHOUT APPLICATION OF MIND. 14. AS FAR AS GR.NO.7 IS CONCERNED, THE ASSESSEE WA S ONE OF THE DIRECTORS OF IFE, WHICH AS ALREADY CLAIMED BY THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF RUNNING A RESTAURANT NAMED NATARAJA I N THE RENTED PREMISES LOCATED IN SAGAR BUILDING, PALO ALTO, SANTA CLARA, CALIFORNIA, U.S.A. THE SAID SAGAR BUILDING WAS ORIGINALLY OWNED BY A CITIZEN OF U.S, A NON INDIAN AND THE BUILDING DID NOT CARRY ANY SPECIFIC NAME. DURI NG THE YEAR 1984 THE ASSESSEE ALONG WITH ONE MR. VIPIN THAKKAR, A NON RE SIDENT INDIAN, AND TWO OTHERS - US CITIZENS, FORMED A LIMITED PARTNERSHIP KNOWN AS SAGAR PARTNERSHIP UNDER THE LAWS OF U.S.A. WITH THE OBJEC TIVE OF ACQUIRING THE SAID BUILDING. A COPY OF THE SAID PARTNERSHIP DEED DATED 20TH JULY, 1984 WAS FILED BEFORE CIT(A). ON FORMATION OF THE PARTNE RSHIP THE SAID SAGAR PARTNERS ACQUIRED THE SAID BUILDING AND NAMED IT AS SAGAR BUILDING. THE BUILDING WAS ACQUIRED OUT OF THE FUNDS OF ONE OF TH E PARTNERS MR. VIPIN THAKKAR, WHOSE DETAILED AFFIDAVIT EXPLAINING THE FACTS AND THE CONTENTS OF THE LOOSE PAPER SEIZED WAS ALSO FILED BEFORE CIT(A) . THE ASSESSEE POINTED OUT THAT THE SAID PARTNERSHIP FIRM SAGAR PARTNERS IS DULY ASSESSED TO TAX UNDER U.S TAX LAWS AND WAS REGULARLY FILING THE R ETURN OF INCOME IN U.S.A. THE SAID IFE ALSO IS REGULARLY ASSESSED TO T AX IN THE U.S. UNDER U.S. TAX LAWS. BOTH THE ENTITIES I.E. IFE AND THE SAGAR PARTNERS ARE REGULARLY MAKING LOSSES SINCE MANY YEARS. THE SAID 1OOSE PAP ERS 21 AND 22 ARE A RECORDING OF A PURPORTED AGREEMENT ARRIVED AT BANGK OK BETWEEN THE ASSESSEE AND THE SAID MR. VIPIN THAKKAR ON 7TH AN D 8TH FEBRUARY, 1996. THE RECORDING ATTEMPTED TO SETTLE SOME OF THE ISSUE S PERTAINING TO THE IT(SS)A 645/MUM/2004 11 ACCOUNTS AND CERTAIN OTHER MATTERS. THE FACTS ABOUT THE CONTENTS OF THE SEIZED PAPER WERE EXPLAINED BY THE ASSESSEE AS UNDE R:- THE SEIZED PAPER RECORDED UNDERSTANDING/AGREEMENT B ETWEEN ASSESSEE AND VIPIN THAKKAR ON THE FOLLOWING ISSUES: (I) THE PAPER RECORDS THAT IFE HAD RECEIVED US$ 2,0 0,000 FROM MARK WHO HAPPENS TO HE MARK KHAWAB. THE SAID PAYMENT WAS MAD E TO THE SAID IFE BY THE SAID MARK FOR THE PURPOSES OF ACQUIRING THE RIG HT TO RUN THE RESTAURANT NATARAJA ALONGWITH ITS FURNITURE, EQUIPMENTS AND OTHER ASSETS. THIS PAYMENT WAS MADE BY THE SAID MARK TO THE SAID IFE O VER A PERIOD OF 2 YEARS. A COPY OF THE AGREEMENT FOR TRANSFER WAS FILED BEFO RE CIT(A). AT THE TIME OF THE AGREEMENT, THE SAID RESTAURANT AND ITS ASSETS W ERE MORTGAGED TO A BANK AS SECURITY AGAINST THE LOAN. ON RECEIPT OF PAYMENT S FROM THE SAID MARK, FROM TIME TO TIME, THE RECEIPTS WERE USED TO DISCHA RGE THE LIABILITY TO BANK AND REDEMPTION OF HE MORTGAGE. ACCORDINGLY, THE SAI D TRANSACTION HAD NOTHING TO DO WITH THE ASSESSEE IN ITS PERSONAL CAP ACITY. AS THE ASSESSEE AND MR. VIPIN THAKKAR WERE THE SHAREHOLDERS ON THE SAID 1FF, THE FACTS PERTAINING TO THE SAID TRANSACTION WERE RECORDED. P ART OF THE RECEIPT OF THE ABOVE TRANSACTION TO THE EXTENT OF 17% EQUIVALENT TO US$ 34,000 WAS UTILIZED BY THE SAID 1FE IN PAYMENT TO MR. VIPIN THAKKAR (II)IT WAS POINTED OUT THAT BALANCE AMOUNT OF US$ 1,66,000/- REMAINING AFTER PAYMENT OF US$ 34,000/- TO THE SAID SHRI VIPI N THAKKAR DID NOT BELONG TO THE ASSESSEE AND DID NOT REPRESENTED HIS UNDISCLOSED INCOME TOGETHER WITH AN AMOUNT OF US$ 8,000. IN THIS REG ARD, THE ASSESSEE POINTED OUT THAT THOUGH THE A.O ALLEGED THAT THE INCOME OF THE ASSESSEE RELATING TO THE LOOSE PAPER WAS US$ 1,74,000, HE NONETHELESS MA DE AN ADDITION OF US$ 2,00,000 IN AN ARBITRARY MANNER.. (III) IN THE CIRCUMSTANCES, IT WAS SUBMITTED THAT: (A) THE SAID AGREEMENT PERTAINED TO THE AFFAIRS OF THE COMPANY 1FE AND THE FIRM SAGAR PARTNERS AND THE INDIVIDUALS RES IDING IN U.S.A. (B) IN ANY CASE, IT CONCERNS ITSELF WITH THE TRAN SACTIONS CARRIED OUT BY A COMPANY NAMELY IFE FOR TRANSFER OF ITS BUSINESS FOR WHICH IT HAS RECEIVED ITS LAWFUL CONSIDERATION. (C) THE TRANSACTION IS DULY RECORDED IN THE BOOKS OF THE SAID COMPANY AND HAD NO DIRECT RELATIONSHIP WITH THE TAXATION OF THE ASSESSEE. (D) THERE WAS NOTHING IN THE SAID LOOSE PAPER TO IN DICATE THAT THE SAID US$ 2,00,000 WAS RECEIVED BY THE ASSESSEE. IN FACT THE SAID LOOSE PAPERS VERY CATEGORICALLY CONFIRM THE RECEIPT. BY THE 1FE CO. (E) NOTWITHSTANDING THE ABOVE, IT WAS THAT THE LOO SE PAPERS PERTAIN TO TRANSFER OF BUSINESS LOCATED IN U.S.A. OWNED BY A C OMPANY REGISTERED IN THE COUNTRY AND THE SAID INCOME IF ANY COULD NOT. BE S UBJECTED TO TAX IN INDIA AND CERTAINLY NOT IN THE HANDS OF THE ASSESSEE. IT(SS)A 645/MUM/2004 12 (F) FURTHER THE ASSESSING 0FFCER HAS BROUGHT TO T AX THE ENTIRE RECEIPT AS REPRESENTING THE UNDISCLOSED INCOME OF THE WHILE THE AMOUNT THAT CAN BE TAXED THE ONLY THE INCOME ELEMENT OF THE TOTAL RE CEIPT WHICH CAN BE DETERMINED ONLY AFTER DEDUCTING THE COST OF ACQUISI TION OF THE BUSINESS AND THE ASSETS. AN AFFIDAVIT OF MR. VIPIN THAKKAR AND THE ASSESSEE WAS FILED DULY CONFIRMING ALL THE ABOVE FACTS. A COPY OF THE DEED OF PARTNER SHIP OF SAGAR PARTNERSHIP WAS ALSO FILED. EVIDENCE OF THE ASSESSEE AS WELL A S IFE HAVING FILED RETURNS OF INCOME IN USA WAS ALSO FILED. 15. AS FAR AS GR.NO.8 IS CONCERNED, THE ASSESSEE SU BMITTED BEFORE CIT(A) THAT THE ASSESSEE WAS THE OWNER OF A HOUSE PROPE RTY IN U.S.A SINCE MANY YEARS. DURING THE RELEVANT YEAR OF INVESTMENT, THE ASSESSEE WAS NON- RESIDENT UNDER FERA AND THE INCOME TAX ACT. THE INV ESTMENT WAS MADE OUT OF THE WORLD INCOME OF THE ASSESSEE EARNED OUTSIDE OF INDIA. THE ASSESSEE WAS DESIROUS OF SELLING THE ABOVE RESIDENCE SOMEWHE RE IN THE YEAR, 1996. THE GAINS THAT MAY ARISE ON THE PROPOSED TRANSFER O F RESIDENCE WAS LIABLE TO TAX IN U.S.A. THE LIKELY TAX WAS US$ 60,000/-. IN O RDER TO SAVE THE SAID TAXES, THE ASSESSEE HAD PREPARED A SCHEME TO DEFER THE PAYMENT OF TAXES. THE SAID LOOSE PAPERS CONTAINED THE NARRATION OF TH E SCHEME. THE SCHEME AS IS EVIDENT WAS ADDRESSED TO THE UNCLES OF ASSESSEE WHO HAPPENED TO BE OWNERS OF LAND IN SAN BERNANDINO, CALIFORNIA WHICH WAS HELD IN A TRUST FOR THEIR BENEFIT. THE SAID LAND WAS ACQUIRED BY T HE GRANDFATHER OF THE ASSESSEE IN THE YEAR 1944 OR THEREABOUT AND WAS SET TLED IN THE TRUST ON HIS DEATH IN THE YEAR 1979. THE SAID LAND WAS ALSO PUT IN THE MARKET FOR SALE BUT WAS UNABLE TO ATTRACT BUYERS AND IT WAS FELT TH AT THE PROPOSED SALE OF THE SAID LAND MIGHT TAKE A COUPLE OF YEARS OR MORE. IN U.S.A. IF THE CAPITAL GAINS ARE REINVESTED IN PURCHASE OF IMMOVABLE PROPE RTY, NO TAX IS LEVIED AND THE GAIN IS EXEMPTED. IN ORDER TO AVAIL THIS EXEMPT ION IN RESPECT OF PROPOSED SALE OF RESIDENCE, A SCHEME WAS SUGGESTED BY THE AS SESSEE WHERE UNDER THE ASSESSEE WOULD SELL THE RESIDENCE AND INVEST THE S ALE PROCEEDS IN ACQUIRING THE SAID LAND BELONGING TO THE TRUST FOR US$ 4,00 ,000. THE CONSIDERATION REMAINING TO BE MET WAS PROPOSED TO BE SETTLED BY I SSUE OF FIVE YEARS PROMISSORY NOTES CARRYING 6% INTEREST. THE SCHEME FURTHER PROPOSED THAT THE TAXES THAT WOULD BE PAYABLE ON SUBSEQUENT SALE OF THE SAID LAND IT(SS)A 645/MUM/2004 13 BELONGING TO THE TRUST WOULD BE PAID BY THE ASSESSE E AS BY THAT TIME HE WOULD HAVE ASSUMED THE OWNERSHIP OF THE SAID LAND U NDER THE SCHEME. IN THIS MANNER IT WAS PROPOSED BY THE ASSESSEE TO DEFE R THE TAXES PAYABLE ON SALE OF RESIDENCE TO THE YEAR IN WHICH THE LAND WOU LD BE SOLD IN THE OPEN MARKET. THE SAID LOOSE PAPERS EXPLAINED THE ABOVE SCHEME. THE SAID SCHEME WAS CARRIED OUT AND THE ASSESSEE SOLD THE HO USE AND THE ASSESSEE DEFERRED PAYMENT OF TAXES IN U.S.A. 16. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFF ICER HAS MADE AN ADDITION OF RS. 10 CRORE IN RESPECT OF THE ALLEGED INVESTMENT IN AN APARTMENT ALLEGED TO BE IN LONDON. NO MATERIAL OR LOOSE PAPE R IN THAT REGARD WAS SEIZED. THE ADDITION APPEARS TO HAVE BEEN MADE SIM PLY ON THE BASIS OF A STATEMENT RECORDED DURING THE PROCEEDINGS WHEREBY T HE ASSESSEE HAD STATED THAT HE IS RESIDING IN AN APARTMENT IN LONDO N. THE RELEVANT QUESTION AND ANSWER OF THE SAID STATEMENT DATED 27/12/1997 A RE REPRODUCED HEREUNDER :- Q. 3 PLEASE GIVE THE DETAILS OF IMMOVABLE PROPERTY HELD BY YOU AND YOUR FAMILY MEMBER. - A. WE HAVE A APARTMENT IN LONDON ADDRESS OF WHICH I WILL GIVE LATER AND A LAND IN CALIFORNIA AT ADALAMTO. IN INDIA WE HAVE INTEREST IN TWO PROPERTIES WHERE I AND MY WIFE HAVE INTEREST AS A BENEFICIARY OF THE FAMILY TRUST WHICH WAS CREATED BY OUR RESPECTIVE GR AND PARENTS. THIS PROPERTIES ARE (A) MARBLE ARCH, PEDDER ROAD, WHEREI N MY WIFE, ROSHAN PATEL IS ONE OF THE BENEFICIARY AND (B) I AM THE BE NEFICIARY IN THE PROPERTY FROM MY MOTHER SIDE THE PROPERTY IS SITUA TED AT 285 TARDEO, J. DADAJI ROAD, TARDEO MUMBAI. IT WAS POINTED OUT BY THE ASSESSEE THAT THE ABOVE S TATEMENT DOES NOT GIVE DESCRIPTION OF THE APARTMENT LIKE LOCATION, AREA YE AR OF PURCHASE OR THE COST OF PURCHASE. IT WAS SUBMITTED THAT THE ENTIRE ESTI MATION AND THE SUBSEQUENT ADDITION BY THE ASSESSING OFFICER APPE ARS TO BE THE CASE OF GUESSWORK. THE CORRECT FACTS WERE CLAIMED BY THE ASSESSEE TO BE AS UNDER :(A) AN APARTMENT IN LONDON WAS ACQUIRED IN THE YE AR 1989 FOR AN AMOUNT OF UK STERLING 43,000. THE PAYMENT FOR THE SAME WAS MADE BY MORTGAGING THE NAME WITH HABIB BANK AG. ZURICH. THE COST OF T HE SAID APARTMENT WAS IT(SS)A 645/MUM/2004 14 UK STERLING 43,000 WHICH IN THAT YEAR WAS EQUIVALEN T TO RS. 10 LAKHS ONLY. THE RELEVANT PAPERS RELATING TO MORTGAGE WHICH INCI DENTALLY CONFIRMS THE YEAR OF THE PURCHASE AND THE COST OF PURCHASE WAS ALSO FILED BEFORE CIT(A). IN THE CIRCUMSTANCES IT WAS SUBMITTED THAT NO ADDIT ION COULD HAVE BEEN MADE ON ACCOUNT OF APARTMENT IN LONDON AND IN ANY C ASE THE SAME COULD NOT HAVE BEEN MADE MORE THAN RS. 10 LAKHS. RELEVAN T DOCUMENTS REGARDING EXISTENCE OF A TRUST AND ITS OWNING PROPERTIES IN U SA WERE ALSO FILED. ALL THE FACTS AS STATED ABOVE WITH REFERENCE TO GR.NO.5, 7 AND 8 WERE CONFIRMED BY BICKFORD ACCOUNTANCY CORPORATION, CERTIFIED PUBLIC ACCOUNTANTS, USA. THE RELEVANT CONFIRMATION READS AS FOLLOWS: TO WHOMSOEVER IT MAY CONCERN 1.THIS IS TO STATE THAT THE BICKFORD ACCOUNTANCY CO MPANY HAS BEEN FILING THE INCOME TAX RETURNS FOR HOMI PATEL FOR A BOUT THE LAST 30 YEARS. ALL THESE RETURNS HAVE BEEN FILED IN STRICT COMPLIANCE WITH US TAX REGULATIONS. WE ARE ENCLOSING THE FIRST PAGE O F THE TAX RETURNS FILED FOR HOMI PATEL IN USA FOR THE PERIOD 1991 TO 1997. THAT HOMI PATELS INCOME TAX IS REPORTED AGAINST SOCIAL SECURITY NO. 299-44-1160 IN USA. 2. WE CERTIFY AND CONFIRM THAT HOMI PATEL WAS A PAR TNER OF A PARTNERSHIP FIRM NAMED AND STYLED AS SAGAR PARTNERS WHICH WAS CONSTITUTED VIDE A DEED OF PARTNERSHIP DATED 1984 B ETWEEN HOMI PATE!, MR. VIPIN THAKKAR, MR. RICHARD BHASIN AND MR . RUSSEL HAYES. THE SAID PARTNERSHIP FIRM WAS THE OWNER OF A BUILDI NG SITUATED IN USA AND NAMED SAGAR BUILDING. THE SAID BUILDING WAS LET ON RENT TO IFE FOR RUNNING THE SAID NATARAJA RESTAURANT. THE SAID SAGAR PARTNERS ARE ASSESSED TO TAX IN USA UNDER INCOME TAX ID NO. 77-0 03 5472. 3. WE CERTIFY AND CONFIRM THAT HOMI PATEL WAS A SHA REHOLDER OF IFE. A COMPANY INCORPORATED IN USA SINCE THE EARLY 1970S. WE CONFIRM THAT THE SAID COMPANY IS NOT HAVING ANY BUSINESS IN IND IA NOW OR EVER, NOR HAS IFE EARNED ANY INCOME IN INDIA AND THAT TH E SAID COMPANY WAS MAKING LOSSES DURING THE PERIOD 1985 TO 1997 WH EN IT WAS WOUND UP. WE FURTHER CONFIRM THAT HOMI PATEL HAS NOT EARN ED ANY INCOME FROM THE SAID IFE AT ANY TIME IN HIS CAPACITY AS A SHAREHOLDER OR OTHERWISE. 4. WE CERTIFY AND CONFIRM THAT THE SAID [FE RECEIVE D FROM ONE MR. MARK KAWKAH US$ 200,000 IN INSTALLMENTS OVER A PER IOD OF ABOUT FOUR YEARS FOR TRANSFERRING THE RIGHTS OF RUNNING T HE RESTAURANT NATARAJA OWNED BY THE SAID IFE FOR A SPECIFIED PERI OD FOR A CONSIDERATION OF US$ 200,000. THE SAID TRANSACTION PERTAINED TO THE SAID IFE AND WAS DULY CONSIDERED IN FILING THE RET URNS OF INCOME OF IT(SS)A 645/MUM/2004 15 THE SAID IFE. A PART OF THE SAID RECEIPT WAS UTIL IZED IN PAYING US$ 34,000 TO MR. VIPIN THAKKAR, A SHAREHOLDER HOLDING 17% SHARES OF IFE FOR RELEASING HIS RIGHTS. THE BALANCE US$160,00 0 WAS UTILIZED BY THE SAID IFE IN REPAYING THE LOANS TAKEN BY THE SAI D IFE AGAINST THE LOAN FROM BANKS. THE SAID IFE IS ASSESSED TO TAX IN USA UNDER THE FEDERAL EMPLOYER ID NO.941752190. 5. WE CERTIFY AND CONFIRM THAT HORNI PATEL GRANDP ARENTS NAMELY, MR. DOSSABHOY JERANGIRJEE PATEL AND MRS. PIROJA DOSSABH OY PATEL WERE THE RESIDENTS OF USA SINCE 1944 AND HAD ACQUIRED A PIE CE OF LAND IN SAN BERNARDINO, CALIFORNIA. USA IN THE YEAR 1952 FOR A CONSIDERATION OF US $ 6,000 OUT OF THEIR OWN FUNS. WE CONFIRM THAT THE SAID MRS. PIROJA PATEL DIED 24 MARCH, 1973 AND THE SAID MR. D OSSABBOY PATEL DIED ON 13TH DECEMBER, 1979 LEAVING THE SAID SARI B ERNARDINO LAND IN A TRUST NAMELY PATEL FAMILY TRUST. WE FURTHER CONFIRM THAT THE SAID TRUST CONTINUED T O OWN THE SAID LAND AND THAT HOMI PATEL WAS NEVER THE OWNER OF THE SAID LAND. 6. WE CONFIRM THAT MR. HOMI PATEL AND MRS. ROSHAN PATEL HAD ACQUIRED A RESIDENTIAL HOUSE SITUATED AT 995 BERKE LEY AVENUE, MENLO PARK, COUNTY OF SAN MATEAO CALIFORNIA 94025, USA DU RING THE YEAR 1979 FOR A CONSIDERATION OF ABOUT US$ 85,000 WHICH WAS MET OUT OF THEIR INCOME EARNED IN USA NOT LIABLE TO TAX IN IND IA AND THAT THE PURCHASE OF THE SAID PROPERTY WAS ACCOUNTED BEFORE THE TAX AUTHORITIES IN USA. WE CONFIRM THAT IN THE YEAR 1996, HOMI PATEL SOLD T HE SAID RESIDENTIAL HOUSE FOR A CONSIDERATION OF US$ 398,500 AND THE CO NSIDERATION RECEIVED WAS UTILIZED IN ACQUIRING THE SAID SAN BER NARDINO LAND FROM THE SAID TRUST. THE PURCHASE PRICE WAS MET WITH THE SALE PROCEEDS OF PROPERTY BEING THE MENLO PARK PROPERTY AND THE BALA NCE CONSIDERATION WAS MET THROUGH THE ISSUE OF PROMISSORY NOTES CARRY ING INTEREST. WE CONFIRM THAT THE TRANSACTIONS WERE ACCOUNTED BEFORE THE US TAX AUTHORITIES. 17. BESIDES THE ABOVE, THE ASSESSEE POINTED OUT THA T HE WAS FILING RETURNS OF INCOME IN INDIA IN THE STATUS OF RESIDENT BUT N OT ORDINARY RESIDENCE AND HAS BEEN DECLARING INCOME IN THE FORM OF FEES R ECEIVED AS MANAGING DIRECTOR OF REPL. SUCH RETURNS HAVE BEEN ACCEPTED BY THE REVENUE CONSISTENTLY IN THE PAST. 18. ON GROUND NO.5 THE CIT(A) HELD THAT THE ASSESSE E FAILED TO SHOW THAT THE INCOME EARNED BY HIM OUTSIDE INDIA WERE DISCLOS ED BEFORE THE INCOME TAX AUTHORITIES OF THOSE COUNTRIES. THOUGH CERTIFI CATE OF CHARTERED IT(SS)A 645/MUM/2004 16 ACCOUNTANT OF USA WAS FILED, COPIES OF RETURNS FILE D IN USA WERE NOT FILED AND SOURCE OF MAKING VARIOUS INVESTMENTS WERE NOT F URNISHED AND IN THE CIRCUMSTANCES ESTIMATION OF INCOME BY THE AO WAS JU STIFIED. 19. ON GROUND NO.7 THE CIT(A) HELD THAT THE AGREEM ENT FOR TRANSFER OF BUSINESS TO MARK KHAWBAB WAS NOT FILED BY THE ASSES SEE NOR WAS THE IDENTITY OF MR.MARK KHAWBAB WAS ESTABLISHED. THERE FORE THE THEORY OF SALE OF BUSINESS FOR 200000 US$ REMAINED TO BE ESTABLISH ED. THE CIT(A) ALSO HELD THAT THE NUMBER OF SHARES HELD BY THE ASSESSEE IN HIS STATUS THEREIN AS ALSO THE SOURCE OF THE INVESTMENT MADE IN THE SAID SHARES WERE NOT CLEAR FROM THE SUBMISSION MADE AS WELL AS THE CERTIFICATE OF THE CPA OF USA. FURTHER RETURN OF INCOME OF VIPIN THAKKAR FILED IN USA DID NOT INDICATE ANY TRANSACTION BETWEEN IFE AND SHRI THAKKAR AS ALLEGED LY CLAIMED BY THE ASSESSEE AND ALSO STATED IN THE STATEMENT THAT HAS RESULTED IN THE PAYMENT OF US $34000 TO SHRI THAKKAR. EVEN RETURNS OF IFE D ID NOT INDICATE ANY TRANSACTION OF TRANSFER OF BUSINESS OF RUNNING REST AURANT IN THE PERIOD AS CLAIMED BY THE APPELLANT. UTILIZATION OF THE REMAI NING AMOUNT OF US $1,6,000 THAT WAS ALLEGEDLY RECEIVED AS CONSIDERATI ON FOR SETTLING THE LIABILITIES OF IFE REMAINED TO BE SUBSTANTIATED. 20. ON GROUND NO.8 THE CIT(A) HELD THAT THE ASSESSE E ON HIS OWN ADMISSION HAS ACCEPTED THE EXISTENCE OF INVESTMENT IN IMMOVABLE PROPERTIES. HOWEVER, THE YEAR OF INVESTMENT HAS NO T BEEN STATED NEITHER IT HAS BEEN ESTABLISHED THAT THE SAID INVESTMENT HAS BEEN MADE AT A TIME PRIOR TO THE ACCOUNTING YEARS FORMING PART OF THE B LOCK PERIOD. THE PROPERTY HAS BEEN TRANSFERRED BY WAY OF SALE IN THE YEAR 199 6 AND THE ASSESSEE WAS LIABLE TO MAKE PAYMENT TO TAX OF US $60000. HE HELD THAT THERE WAS NO EVIDENCE PRODUCED TO SHOW THAT THIS CAPITAL GAIN A MOUNT HAS BEEN DISCLOSED BY THE ASSESSEE IN HIS RETURN FILED IN TH E UNITED STATES AND THAT THE TAX AMOUNT OF US $60000 HAS ACTUALLY BEEN PAID OR TAX EXEMPTION IN THAT RESPECT HAS BEEN CLAIMED BY THE ASSESSEE BEF ORE THE US TAX AUTHORITIES. THE CIT(A) HELD THAT IN THE CIRCUMSTA NCE AS FAR AS THE INVESTMENTS MADE IN USA IS CONCERNED, THE ASSESSEE CANNOT BE SAID TO HAVE DISCHARGED HIS ONUS. FURTHER, HE HELD THAT THE ADDI TION CANNOT E RESTRICTED IT(SS)A 645/MUM/2004 17 ONLY TO THE EXTENT OF THE INVESTMENT. THE SUBSEQUEN T PROFIT ARISING TO HIM ON TRANSFER, HIS INTEREST IN LAND ARE ALSO TO BE TAKEN INTO ACCOUNT. THEREFORE, THE ADDITION OF RS 10 CORES MADE BY THE ASSESSING OFFICER IN THIS DIRECTION WAS HELD TO BE CORRECT AND HENCE CALLS FOR NO INTER FERENCE. IN SO FAR A THE ADDITION ON ACCOUNT OF INVESTMENT MADE IN PROPERTY IN UNITED KINGDOM IS CONCERNED, THE CIT(A) ACCEPTED THE PLEA OF THE ASSE SSEE AND DELETED ADDITION TO THE EXTENT OF RS.10 CRORES. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARN ED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS AS WERE MADE BEFORE CIT(A) AND SUBMITTED THAT THE ADDITION WAS BEYOND THE SCOPE OF DEFINITIO N OF UNDISCLOSED INCOME UNDER THE ACT. THE LEARNED D.R. REITERATED THE STA ND OF THE REVENUE AS REFLECTED IN THE ORDER OF CIT(A). 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE FIRST ISSUE THAT HAS TO BE EXAMINED IS AS TO WHETHER IT CAN BE SAID THAT TH E IMPUGNED ADDITIONS COULD BE MADE IN AN ASSESSMENT UNDER CHAPTER-XIV-B OF THE ACT. TO ANSWER THE ABOVE QUESTION, WE HAVE TO EXAMINE THE RELEVANT PROVISIONS OF CHAPTER- XIV-B OF THE ACT, REGARDING DETERMINATION OF UNDISC LOSED INCOME. UNDISCLOSED INCOME HAS BEEN DEFINED IN THE ACT AS FOLLOWS: 158B. IN THIS CHAPTER, UNLESS THE CONTEXT OTHERWIS E REQUIRES,- (B) UNDISCLOSED INCOME INCLUDES ANY MONEY, BULLI ON, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING OR ANY INCOME BA SED ON ANY ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR TRANSACTIONS, WHERE SUCH MONEY, BULLION, JEWELLERY, VALUABLE ARTI CLE, THING, ENTRY IN THE BOOKS OF ACCOUNT OR OTHER DOCUMENT OR TRANSACTION REPRESENTS WHOLLY OR PARTLY INCOME OR PROPERTY WHIC H HAS NOT BEEN OR WOULD NOT HAVE BEEN DISCLOSED FOR THE PURPO SES OF THIS ACT, OR ANY EXPENSE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT WHICH IS FOUND TO BE FALSE. THE UNDERLINED PORTION IN THE DEFINITION OF UNDICL SOED INCOME WAS ADDED BY THE FINANCE ACT, 2002 HAS AMENDED THE DEFINITION OF UNDISCLOSED INCOME IN SECTION 158B(B) W.E.F. 1-7-1995 EXPLANATION TO SEC. 158 BA (2) INSERTED BY THE FINA NCE (NO. 2) ACT, 1998 WITH RETROSPECTIVE EFFECT FROM JULY 1, 1995, READS AS FOLLOWS: IT(SS)A 645/MUM/2004 18 EXPLANATION FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT (A) THE ASSESSMENT MADE UNDER THIS CHAPTER SHALL BE IN ADDITION TO THE REGULAR ASSESSMENT IN RESPECT OF EA CH PREVIOUS YEAR INCLUDED IN THE BLOCK PERIOD; (B) THE TOTAL UNDISCLOSED INCOME RELATING TO THE BLOCK PERIOD SHALL NOT INCLUDE THE INCOME ASSESSED IN ANY REGULA R ASSESSMENT AS INCOME OF SUCH BLOCK PERIOD. (C) THE INCOME ASSESSED IN THIS CHAPTER SHALL NOT BE IN CLUDED IN THE REGULAR ASSESSMENT OF ANY PREVIOUS YEAR INCL UDED IN THE BLOCK PERIOD. THE PROVISIONS OF SECTION 158BB(1) OF THE ACT LAYS DOWN THE COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE SAME R EADS AS FOLLOWS: 158BB. COMPUTATION OF UNDISCLOSED INCOME OF THE BLO CK PERIOD.-- (1) THE UNDISCLOSED INCOME OF THE BLOCK PERIOD SHAL L BE THE AGGREGATE OF THE TOTAL INCOME OF THE 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 WIT H THE ASSESSING OFFICER 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 YEA RS, DETERMINED,-- THE UNDERLINED PORTION IN THE ABOVE PROVISIONS WERE INTRODUCED BY THE FINANCE ACT, 2002, W.R.E.F. 1-7-1995. PRIOR TO THE AFORESAID AMENDMENTS, THE PROVISIONS OF SEC.158BB REFERRED TO ONLY EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS AND THEREFORE IT WAS INTERPRETED BY COURT S AND TRIBUNALS THAT TWO ELEMENTS HAVE TO BE SATISFIED BEFORE THE I NCOME CAN BE SAID TO BE UNDISCLOSED INCOME: A) THERE SHOULD BE A FACTUM OF NON DISCLOSURE ON THE P ART OF THE ASSESSEE B) SUCH NON DISCLOSURE SHOULD HAVE BEEN DETECTED AS A RESULT OF SEARCH. 23. AS ALREADY SEEN THE FINANCE ACT, 2002 HAS AMEND ED THE DEFINITION OF UNDISCLOSED INCOME IN SECTION 158B(B) W.E.F. 1-7-19 95 TO SPECIFICALLY INCLUDE THEREIN INCOME BASED ON ENTRIES IN BOOKS OF ACCOUNT OR OTHER DOCUMENTS WHICH REPRESENT A FALSE CLAIM OF ANY EXPENSE, DEDUC TION, OR ALLOWANCE UNDER IT(SS)A 645/MUM/2004 19 THE INCOME-TAX ACT. THE AFORESAID AMENDMENT NOW MA KES IT POSSIBLE TO DISALLOW ANY EXPENSE OR DEDUCTION OR ALLOWANCE CLAI MED UNDER THIS ACT, WHICH IS FOUND TO BE FALSE. THE EXPRESSION FOUND TO BE FALSE IS VERY IMPORTANT. IT IS ONLY WHEN AS A RESULT OF SEARCH E VIDENCE IS FOUND WHICH SHOWS THAT THE EXPENSES, DEDUCTION OR ALLOWANCE CLA IMED UNDER THE ACT IS FOUND TO BE FALSE CAN IT BE SAID TO BE UNDISCLOSED INCOME NOTWITHSTANDING THE FACT THAT IT HAD ALREADY BEEN DISCLOSED TO THE DEPARTMENT EITHER BY DISCLOSING IN THE RETURN FILED PRIOR TO SEARCH OR I N THE FORM OF ENTRIES IN THE BOOKS OF ACCOUNTS PRIOR TO SEARCH. TO THIS EXTENT THE PROPOSITION REFERRED TO ABOVE THAT TWO CONDITIONS HAVE TO BE SATISFIED STAN DS MODIFIED. THE QUESTION THEREFORE IS AS TO WHETHER EVIDENCE FOUND IN THE COURSE OF SEARCH AND SUCH OTHER EVIDENCE AND MATERIAL RELATABLE TO E VIDENCE FOUND IN THE COURSE OF SEARCH ESTABLISHED EXISTENCE OF UNDISCLOS ED INCOME. FURTHER THE AMENDMENT TO SECTION 158BB WITH RETROSPECTIVE EFFEC T FROM JULY 1, 1995, BY ADDING THE WORDS AND SUCH OTHER MATERIALS OR INFOR MATION AS ARE AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SUCH EV IDENCE HAS IT FURTHER WIDENED THE SCOPE OF MAKING ASSESSMENT OF UNDISCLOS ED INCOME. 24. IN MANGERAM MITTAL VS. ACIT 289 ITR 112 (AT) (D EL), THE ITAT EXAMINED THE SCOPE OF THE ABOVE AMENDMENTS TO THE V ARIOUS PROVISIONS OF CHAPTER XIV-B OF THE ACT, FOR MAKING BLOCK ASSESSME NTS, IN THE FOLLOWING WORDS: THE COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD IN A BLOCK ASSESSMENT MUST BE RELATED TO EVIDENCE FOUND AS A R ESULT OF SEARCH PROCEEDINGS. THE FINANCE ACT, 2002, BY THE AMENDMEN T TO SECTION 158BB WITH RETROSPECTIVE EFFECT FROM JULY 1, 1995, ADDED THE WORDS AND RELATABLE TO SUCH EVIDENCE : THE UNDISCLOSED INCOME HAS TO BE COMPUTED ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH AND/OR OTHER MATERIALS OR INFORMATION RELATABLE TO SUCH EV IDENCE. AT THE SAME TIME IT CANNOT BE CONCLUDED THAT UNDISCLOSED INCOM E TO BE COMPUTED UNDER THE PROVISIONS OF SECTION 158BC SHOULD BE CON FINED TO THE EVIDENCE FOUND DURING THE COURSE OF THE SEARCH. EVE N AFTER THE AMENDMENT BY THE FINANCE ACT, 2002, WITH RETROSPECT IVE EFFECT FROM JULY 1, 1995, THERE IS SCOPE TO LET IN OTHER MATERI ALS OR INFORMATION GATHERED BY THE ASSESSING OFFICERS DURING THE COURS E OF POST-SEARCH IT(SS)A 645/MUM/2004 20 ENQUIRY, BUT SUCH OTHER MATERIALS OR INFORMATION AS NOW CLEARLY MANDATED BY THE LEGISLATURE MUST BE RELATABLE TO EV IDENCE FOUND AS A RESULT OF SEARCH. THE INSERTION OF THE WORDS RELATABLE TO SUCH EVIDE NCE BY THE FINANCE ACT, 2002, WITH RETROSPECTIVE EFFECT FROM JULY 1, 1 995, IS INTENDED TO RESTRICT THE SCOPE OF MATERIAL OR INFORMATION THAT MAY BE RELIED UPON BY THE ASSESSING OFFICER BECAUSE IT HAS TO BE RELAT ABLE TO EVIDENCE FOUND AS A RESULT OF SEARCH IN THE FIRST INSTANCE. AS LONG AS THERE IS AN EVIDENCE OF UNDISCLOSED INCOME OF THE ASSESSEE, THA T WOULD BE SUFFICIENT TO CLOTHE THE ASSESSING OFFICER WITH THE POWERS TO ADD TO SUCH EVIDENCE ANY FURTHER MATERIAL OR INFORMATION T HAT MAY BE PERTINENT OR NECESSARY TO REACH A LOGICAL CONCLUSIO N BUT THERE HAS TO BE A CERTAIN AND SPECIFIC NEXUS BETWEEN THE EVIDENC E FOUND AS A RESULT OF SEARCH AND UNDISCLOSED INCOME PROPOSED TO BE ASS ESSED IN THE BLOCK ASSESSMENT UNDER SECTION 158BC. AT THE SAME T IME IT CANNOT BE HELD THAT CONCLUSIVE EVIDENCE OF UNDISCLOSED INCOME SHOULD BE FOUND DURING THE COURSE OF SEARCH ACTION ITSELF AND NOTHI NG FURTHER CAN BE ADDED OR SUPPLEMENTED BY WAY OF SUBSEQUENT ENQUIRY. THERE SHOULD BE, IN THE FIRST INSTANCE, EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS THAT MAY CONSTITUTE THE BASIS OF COMPUTATION OF UNDISCLOSED INCOME. THAT EVIDENCE MAY NOT BE CONCLUSIVE TO ARRIVE AT THE F INDING OF UNDISCLOSED INCOME AND THE ASSESSING OFFICER MAY SU PPLEMENT IT WITH MATERIALS OR INFORMATION THAT HE MAY GATHER OR THAT MAY BE OTHERWISE AVAILABLE WITH HIM AT THE TIME OF COMPUTA TION OF UNDISCLOSED INCOME OF THE BLOCK PERIOD. THE EXPRESS ION RELATABLE APPEARING IN SECTION 158BB(1) PERMITS THE ASSESSING OFFICER TO BRING MATERIAL ON RECORD AS MAY BE REQUIRED FOR COMPUTATI ON OF UNDISCLOSED INCOME IN RELATION TO EVIDENCE FOUND AS A RESULT OF SEARCH. ALL MATERIALS OR INFORMATION GATHERED BY THE ASSESSING OFFICER OR RECEIVED BY THE ASSESSING OFFICER IN THE PROCESS OF COMPUTAT ION OF UNDISCLOSED INCOME ON THE BASIS OF EVIDENCE WOULD CONSTITUTE MATERIALS OR INFORMATION RELATABLE TO SUCH EVIDENCE. 'ANY UNDISCLOSED INCOME DISCOVERED BY THE ASSESSING OFFICER ENTIRELY ON THE BASIS OF MATERIAL OR INFORMATION GATHERED BY HIM ON HIS OWN WITHOUT THERE BEING ANY RELATIONSHIP WHATSOEVER WIT H AN EVIDENCE FOUND AS A RESULT OF SEARCH, CANNOT FORM PART OF UN DISCLOSED INCOME TO BE BROUGHT TO BLOCK ASSESSMENT UNDER THE PROVISIONS OF SECTION 158BC. IT(SS)A 645/MUM/2004 21 25. WE SHALL NOW PROCEED TO EXAMINE THE EVIDENCE FO UND IN THE COURSE OF SEARCH AND RELATABLE EVIDENCE, IF ANY, BASED ON WHI CH THE AO DETERMINED UNDISCLOSED INCOME WHICH ARE DISPUTED IN THE ABOV E GROUNDS OF APPEAL. 26. AS FAR AS GR.NO.5 IS CONCERNED, THE RELIANCE PL ACED BY THE AO FOR MAKING ADDITION IS THE FACT THAT THE ASSESSEE SEEMS TO BE HANDLING SEVERAL BANK ACCOUNTS ABROAD AND HAVING INTEREST IN SEVERAL BUSINESSES AND THEREFORE HE MUST BE EARNING INCOME IN THE RANGE OF RS.1 CRORE EACH YEAR. THE DOCUMENTS REFERRED TO BY THE LEARNED AO IN THIS REGARD ARE THE SAME DOCUMENTS BASED ON WHICH HE HAS ALSO MADE SEPARATE ADDITIONS. THE ADDITIONS MADE BY THE AO BASED ON DOCUMENTS HAVE A LREADY BEEN SEEN. THE AO MADE AN ADDITION OF RS.75 LACS BASED ON DOCU MENT A-1 PAGE-21 & 22 WHICH IS SUBJECT MATTER OF CHALLENGE IN GR.NO.7. HE MADE AN ADDITION OF RS.20 CRORES BASED ON A-1 PAGES 27 & 28, WHICH IS D ISPUTED IN GROUND NO.8 IN THIS APPEAL. HE MADE AN ADDITION OF RS.1.92 CRO RES BASED ON A-1 PAGE- 11, WHICH IS DISPUTED IN GR.NO.6 IN THIS APPEAL. B ASED ON THE VERY SAME DOCUMENTS AND OTHER SEIZED DOCUMENTS VIZ., A-1 PAGE S 13 & 14 AND PAGES 19 & 20, THE AO HAS CONCLUDED IN PARA-15 OF HIS ORD ER AS FOLLOWS TO MAKE THE ADDITION OF RS.11 CRORES, WHICH IS DISPUTED IN GR.NO.5 OF THIS APPEAL. 15. IN ADDITION TO THE ABOVE EVIDENCES SHOWING AC QUISITION OF PROPERTIES IN INDIA AND ABROAD, IT IS ALSO EVIDENT FROM THE SEIZED PAPER NO.A-1, 13, 14, 19 & 20 AND SEIZED PAPERS AS PER AN NEXURE A-3 THAT THE ASSESSEE WAS HAVING BUSINESS INTEREST IN RUNNIN G RESTAURANT AND TRAVEL AGENCY IN SAN FRANCISCO, USA, M/S.SIGMA TECH NICAL CO. U.K. AND M/S.CONSOLIDATED UNIVERSAL, U.K. THE ASSESSEE BEING RESIDENT IN INDIA WAS LIABLE TO OFFER TO TAX HIS INCOME FROM AB ROAD. DESPITE SPECIFIC NOTICES GIVEN TO HIM TO SUBMIT SPECIFIC DE TAILS AND EXPLANATION, HE HAS EVADED COMPLIANCE. THERE IS TH EREFORE NO ALTERNATIVE, BUT TO ESTIMATE THE FOREIGN INCOME. T AKING AN OVERALL VIEW OF THE LARGE SCALE TAX EVASION THROUGH PAPER TRANSA CTIONS IN WIND MILL AND ALSO LOOKING TO THE MAGNITUDE OF THE FOREIGN CU RRENCY HANDLED BY THE ASSESSEE, I ESTIMATE HIS FOREIGN UNDISCLOSED IN COME AT RS.1 CRORE FOR ALL THE PREVIOUS YEAR FALLING IN THE BLOCK PERI OD. AS CAN BE SEEN FROM THE ABOVE OBSERVATIONS, SEIZED PAPER A-1 PAGES 13 AND 14, AS EXPLAINED BY THE ASSESSEE ARE BUSINESS PROPO SALS AND THERE IS NOTHING TO SHOW EARNING OF ANY UNDISCLOSED INCOME B Y THE ASSESSEE. PAGES 19 AND 20 ARE BLANK LETTER HEADS OF TWO COMPANIES O NE INCORPORATED IN USA IT(SS)A 645/MUM/2004 22 AND THE OTHER IN U.K. THE ASSESSEE HAS DENIED ANY CONNECTION WHATSOEVER WITH THESE COMPANIES AND THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO THE CONTRARY. THE SEIZED PAPER PAGES 13 AND 14 REF ERS TO IFE WHICH IS A COMPANY INCORPORATED IN USA. THE LEARNED D.R. SAYS THAT THE ASSESSEE AS A SHAREHOLDER MUST BE IN RECEIPT OF INCOME ON THE SHA RES HELD BY HIM. IN RESPECT OF SEIZED PAPER PAGES 27 & 28, THEY RELATE TO A PROPOSED WORKING OF TAX EFFECT IN RESPECT OF PROPERTIES IN USA. THEY D O NOT BY ANY STRETCH OF IMAGINATION SHOW EXISTENCE OF ANY UNDISCLOSED INCOM E. THE OTHER PAPERS RELIED UPON BY THE AO HAVE BEEN USED BY HIM FOR MAK ING SEPARATE ADDITIONS AND THEY CANNOT THEREFORE BE AGAIN USED TO MAKE AN ADHOC ADDITION OF RS.1 CRORE FOR EACH OF THE ASSESSMENT YEARS COMPRISED IN THE BLOCK PERIOD. WE MUST REMEMBER THAT WE ARE DETERMINING UNDISCLOSED INCOME, UNDER CHAPTER XIV-B OF THE ACT. IN SUCH ASSESSMENTS, THE EVIDENCE FOUND AS A RESULT OF SEARCH MUST DISCLOSE EXISTENCE OF UNDISCL OSED INCOME. IN THE FIRST PLACE THE EVIDENCE FOUND AS A RESULT OF SEARCH DID NOT IN OUR VIEW SHOW EXISTENCE OF ANY UNDISCLOSED INCOME. THE POST SEAR CH ENQUIRIES ALSO DID NOT SHOW THAT THERE WAS ANY UNDISCLOSED INCOME. THE EX PLANATION OF THE ASSESSEE ON EACH OF THE PAPERS FOUND IN THE COURSE OF SEARCH HAS BEEN SIMPLY BRUSHED ASIDE BY THE CIT(A) FOR NO VALID REA SONS. IN OUR VIEW THE EXPLANATION OFFERED IS ACCEPTABLE AND SHOWS THAT IN ANY EVENT THE ASSESSEE CANNOT BE SAID TO HAVE ANY INCOME IN INDIA WHICH IS CHARGEABLE TO TAX AND WHICH REMAINED UNDISCLOSED TO THE DEPARTMENT. THER E IS NO CORROBORATIVE EVIDENCE BROUGHT ON RECORD BY THE AO. IN THIS REGA RD THE CIT(A) HAS PROCEEDED ON THE BASIS THAT THE ONUS WAS ON THE ASS ESSEE TO SHOW THAT THERE WAS NO UNDISCLOSED INCOME. THIS APPROACH OF THE CIT(A) IS POSSIBLE ONLY WHEN THE DOCUMENTS OR OTHER EVIDENCE FOUND IN THE COURSE OF SEARCH SHOWS THAT THE ASSESSEE HAS EARNED INCOME WHICH HE HAS NOT OR WOULD NOT HAVE DISCLOSED TO THE DEPARTMENT. AS ALREADY STATE D THERE IS NOTHING IN THE SEIZED DOCUMENT TO SHOW EXISTENCE OF ANY SUCH UNDIS CLOSED INCOME. IT IS NOT POSSIBLE TO MAKE SUCH HUGE AND ARBITRARY ADDITI ON BASED ON ASSUMPTIONS AND PRESUMPTIONS. THERE IS NO EVIDENCE ON RECORD TO SHOW THE EARNING OF ANY INCOME NOT DISCLOSED TO THE DEPARTME NT BY THE ASSESSEE MUCH LESS A SUM OF RS.1 CRORES FOR EACH OF THE ELEV EN ASSESSMENT YEARS IT(SS)A 645/MUM/2004 23 REFERRED TO IN THE ORDER OF ASSESSMENT. IN OUR VIE W THE ADDITION IS ARBITRARY AND TOTALLY UNJUSTIFIED. THE SAME IS DIRECTED TO B E DELETED. GR.NO.5 IS ACCORDINGLY ALLOWED. 27. AS FAR AS GR.NO.7 IS CONCERNED, WE MUST SAY THA T THE SEIZED DOCUMENT VIZ., A-1 PAGES 21 AND 22 RECORDS A MEMORANDUM OF U NDERSTANDING BETWEEN THE ASSESSEE AND ONE MR. VIPIN THAKKAR. THE ASSESS EES STAND ON THE SAME SHOWS THAT THERE WAS NO INCOME ACCRUING TO THE ASSE SSEE MUCH LESS UNDISCLOSED INCOME. THE BUSINESS OF IFE ( A COMPAN Y) AS WELL AS SAGAR BUILDING ( A PARTNERSHIP FIRM) WERE ALL IN LOSSES. MOREOVER THE ASSESSEE AS AN INDIVIDUAL AT BEST CAN HAVE INTEREST IN SUCH BUS INESS ONLY AS SHAREHOLDER OR AS PARTNER. THE EVIDENCE IN THE FORM OF AFFIDA VIT OF MR.VIPIN THAKKAR AND THE ASSESSEE EXPLAINING THE SEIZED PAPER AND THE AF FIDAVIT OF BICKFORD ACCOUNTANCY CORPORATION, CPA, USA HAVE ALL BEEN IGN ORED. THERE IS PRIMA FACIE EVIDENCE TO SHOW THAT IFE IS A COMPANY INCORP ORATED IN USA AND FILING TAX RETURNS THERE. THE TRANSACTION PERTAINS TO IFE AND THE FIRM AND THERE IS NOTHING TO INDICATE IN THE SEIZED DOCUMENT RECEIPT OF ANY INCOME BY THE ASSESSEE. THE AO IS NOT IN POSSESSION OF ANY EVIDE NCE TO SHOW THAT THE ASSESSEE RECEIVED A SUM OF RS.75 LACS. THERE IS NO MATERIAL FOUND EVEN IN THE POST SEARCH ENQUIRIES RELATABLE TO EVIDENCE FOU ND IN THE COURSE OF SEARCH BY WHICH IT CAN BE SAID THAT THE ASSESSEE WAS IN RE CEIPT OF RS.75 LACS AS UNDISCLOSED INCOME FOR THE RELEVANT A.Y. WE ARE OF THE VIEW THAT THIS ADDITION IS ALSO ARBITRARY AND CANNOT BE SUSTAINED. SUCH EVIDENCE EVEN IN A REGULAR ASSESSMENT CANNOT STAND THE TEST OF LAW AND MORE SO IN A BLOCK ASSESSMENT WHICH IS RESTRICTED TO DETERMINATION OF UNDISCLOSED INCOME DISCOVERED AS A RESULT OF SEARCH AND SEIZURE OPERAT ION AND WHICH IS TO BE MADE ONLY ON THE BASIS OF MATERIAL FOUND IN THE COU RSE OF SEARCH AND RELATABLE EVIDENCE. FOR THE REASONS STATED ABOVE, WE DELETE THE ADDITION OF RS.75 LACS CHALLENGED IN GR.NO.7. 28. AS FAR AS ADDITION MADE IN GR.NO.8 IS CONCERNED , WE FIND FROM THE RECORD THAT THE BASIS OF THE SAID ADDITION IS SEIZE D DOCUMENT PAGES 27 AND 28. THE SEIZED DOCUMENT WAS A PROPOSAL BY THE ASSE SSEE TO HIS UNCLES. THE ASSESSEE OWNED A PROPERTY IN MENLO PARK, COUNTY OF SAN MATEO, CALIFORNIA, IT(SS)A 645/MUM/2004 2 4 USA, WHICH HE ACQUIRED IN THE YEAR 1979. THAT WAS SOLD IN THE YEAR 1996 AND THE SALE PROCEEDS WERE INVESTED IN PURCHASE OF A PROPERTY IN SAN BERNARDINO, CALIFORNIA, USA. THE CLAIM OF THE ASSE SSEE IS THAT THE TRANSACTION HAS BEEN DULY DISCLOSED TO THE US TAX A UTHORITIES. AN AFFIDAVIT OF BICKFORD ACCOUNTANCY CORPORATION, CPA, USA, HAS BEEN FILED IN THIS REGARD. BASED ON THE ABOVE, IT CAN AT BEST BE SAID THAT CAPITAL GAIN, IF ANY ON THE SALE OF THE PROPERTY AT MENLO PARK BY THE AS SESSEE WOULD NEED TO BE ASSESSED. WHAT IS THE CAPITAL GAIN ON SUCH SALE IS NOT QUANTIFIED. AS TO WHETHER THE SAME CAN BE ASSESSED IN INDIA OR NOT IS AGAIN NOT CLEAR. IN THIS REGARD, WE MAY MENTION THAT THE SEIZED DOCUMENT IS DATED 13.5.1996 AND IT REFERS TO A PROPOSAL FOR SALE OF ONE PROPERTY AND P URCHASE OF ANOTHER PROPERTY. THE TRANSACTION HAD TAKEN PLACE AFTER 13 .5.1996 WHICH WOULD FALL WITHIN THE PREVIOUS YEAR RELEVANT TO AY 97-98. FOR AY 97-98, THE ASSESSEE HAS FILED RETURN OF INCOME IN INDIA IN THE STATUS O F A NON-RESIDENT. THE ACKNOWLEDGEMENT OF RETURN OF INCOME IS AT PAGE-234 TO 239 OF THE PAPER BOOK. ACCORDING TO THE LEARNED D.R., THE STATUS OF THE ASSESSEE IS IN DISPUTE AND AS TO WHETHER THE SAID RETURN OF INCOME WAS SCR UTINIZED OR NOT IS NOT KNOWN. WE ARE OF THE VIEW THAT THIS AGAIN IS A FAC T WHICH WILL GO TO SHOW THAT THE QUESTION AS TO WHETHER THE CAPITAL GAIN CA N BE ASSESSED IN INDIA OR NOT IS DOUBTFUL AND IN ANY EVENT THE SAME OUGHT NOT TO HAVE BEEN MADE IN AN ASSESSMENT UNDER CHAPTER-XIV-B OF THE ACT. THE CIT(A) HAS NOT ADDRESSED ANY OF THESE ISSUES AND HAS CONFIRMED THE ADDITION OF RS.10 CRORES. WE FAIL TO SEE HOW A SUM OF RS.10 CRORES C AN BE ASSESSED ON THIS SCORE. THE PROPERTY IS STATED TO HAVE BEEN PURCHAS ED IN THE YEAR 1979 FOR US $ 85000 AND SOLD FOR US$ 3,98,500. EVEN ASSUMIN G THE ENTIRE SALE VALUE IS CONSIDERED AS INCOME, THE ADDITION CAN BE EQUIVALENT OF ONLY US$ 3,98,500 WHICH WOULD BE IN THE RANGE OF ABOUT RS.1. 16 CRORES. WE ARE OF THE VIEW THAT THE ADDITION SUSTAINED BY THE CIT(A) DESERVES TO BE DELETED. FOR THE REASONS GIVEN ABOVE, WE DIRECT THAT THE ADD ITION OF RS.10 CRORES CHALLENGED IN GR.NO.8 BE DELETED. GR.NO.8 IS ACCOR DINGLY ALLOWED. 29. GR.NO.6 RAISED BY THE ASSESSEE READS AS FOLLOWS : IT(SS)A 645/MUM/2004 25 6. ADDITION OF RS. 1,92,00,000/- ON ACCOUNT OF UNE XPLAINED INVESTMENT BY CONSOLIDATED UNIVERSAL INC. IN THE SH ARES OF REPL ENGINEERING LTD. (PARA 42 TO 48 OF CIT(A)S ORDER & PARA 12 OF ASSESSMENT ORDER. (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITIONS OF RS. 1.92 CRORES BY CONSOLIDATED UNIVER SAL, A U.K. BASED COMPANY IN THE SHARES OF REPL ENGINEERING LTD . AS REPRESENTING UNEXPLAINED INVESTMENT OF THE APPELLAN T. (B) YOUR APPELLANT SUBMITS THAT HE HAS NOT MADE ANY UNA CCOUNTED INVESTMENTS IN THE SAID COMPANY, WHERE AS THE SAID COMPANY HAD MADE SUCH INVESTMENT IN M/S. REPL ENGINEERING LTD. IN ACCORDANCE WITH THE APPROVAL OF RBI OUT OF THE FUN DS BORROWED FROM THE BANK. (C) YOUR APPELLANT PRAYS FOR DELETION OF RS. 1,92,00,00 0/-. 39. SEIZED DOCUMENT A-1 PAGE-11 GAVE A LIST OF PERS ONS HOLDING SHARES. IN THE LIST AN ENTRY SHOWING A COMPANY BY NAME CONSOL IDATED UNIVERSAL(CU) NRI HOLDING 1,92,000 NON-TRANSFERABLE SHARES OF RS. 10 EACH, (VALUE RS.1.92 CRORES) WAS FOUND. ACCORDING TO THE A,O CONSOLIDAT ED UNIVERSAL WAS A CONCERN BASED IN UK AND CONTROLLED BY THE ASSESSEE. SINCE THE ASSESSEE DID NOT GIVE ANY EXPLANATION THE VALUE OF RS.1.92 CRORE S WAS ADDED AS UNEXPLAINED INVESTMENT IN AY 1992-93 BECAUSE THE LI ST SHOWED SHARE - HOLDING AS ON 12.8.91. 31. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT M/S. CONSOLIDATED UNIVERSAL U.K IS A COMPANY INCORPORATED IN LIBERIA BY THE TAIB BANK OF BHARAIN EC. IT IS SUBJECT TO THE LAWS OF THAT COUN TRY AND IS SUBJECT TO TAXATION IN THAT COUNTRY. THE ASSESSEE HAS NO INTE REST IN THE ABOVE COMPANY AND DOES NOT HOLD ANY SHARES IN THE SAID CO MPANY. THE SAID COMPANY HAD INVESTED IN 19,20,000 SHARES FOR REPL E NGINEERING LTD. VALUED AT RS. 1.92 CRORE IN THE YEAR 1992-93. THE SAID COMPANY HAD OBTAINED THE NECESSARY PERMISSION OF RBI FOR THE PU RPOSES OF INVESTMENT BY A NON-RESIDENT IN INDIAN COMPANY. A COPY OF THE SA ID PERMISSION ISSUED BY RBI WAS FILED BEFORE CIT(A). THE INVESTMENT BY THE SAID CONSOLIDATED UNIVERSAL IN THE SHARES OF THE SAID REPL IS STRICTL Y AS PER THE CLEARANCE BY THE RBI AND HAS NOTHING TO DO WITH THE AFFAIRS OF T HE ASSESSEE. A CERTIFICATE OF M/S. MOORE STEPHENS CHARTERED ACCOUNTANTS OF UK CONFIRMING THE ABOVE IT(SS)A 645/MUM/2004 26 FACTS WAS ALSO FILED. IT WAS SUBMITTED THAT A CUR SORY LOOK AT THE LOOSE PAPER RELIED UPON BY THE AO WOULD CONFIRM THAT IT NOWHERE SUGGEST ANY INVESTMENT BY THE ASSESSEE OR THE USE OF THE FUNDS OF THE ASSESSEE. THE CIT(A) HOWEVER REJECTED THE CLAIM OF THE ASSESSEE O BSERVING AS FOLLOWS: 45. IN SO FAR AS THIS ADDITION IS CONCERNED, AGAI N INFORMATION FURNISHED BY THE APPELLANTS REPRESENTATIVE HAS BEE N RATHER INCOMPLETE. THE APPELLANTS REPRESENTATIVE HAS NOT BEEN ABLE TO CLARIFY AS TO HOW MICHAEL MACINNES CA WAS AUTHORISED TO FUR NISH THE INFORMATION THAT WAS ESSENTIALLY IN REGARD TO A COM PANY REGISTERED IN LIBERIA. ON THE OTHER HAND, THE DOCUMENTS FURNISHE D ALSO REVEAL THAT THE APPLICATION FOR ALLOTMENT OF SHARES WAS SIGNED BY ONE SHRI K.D.MISTRY APPARENTLY AS DIRECTOR OF CONSOLIDATED UNIVERSAL LTD. NO CONFIRMATION FROM HIM WAS FILED IN RESPECT TO INVE STMENT AND THE SOURCE THEREOF. THERE IS NO DISPUTE THAT SHRI MIST RY IS DEFINITELY IN A BETTER POSITION TO GIVE THE CORRECT FACTS. 47. FURTHER THE CLAIM OF THE APPELLANT THAT THE IN VESTMENT WAS MADE BY CONSOLIDATED UNIVERSAL LTD. AFTER DUE APPROVAL O F THE RBI IN TERMS OF FERA PROVISIONS IS RATHER INCORRECT. THE DOCUMEN TS PRODUCED IN THIS REGARD ONLY INDICATE THAT THE GOVERNMENT HAD G IVEN PERMISSION TO REPL ENGG. LTD. TO CALL FOR PART OF THE SUBSCRIPTIO N IN SHARES FROM NON-RESIDENT INDIANS ETC ON REPATRIATION BASIS. NO SPECIFIC APPROVAL OF INVESTMENT MADE BY CONSOLIDATED UNIVERSAL LTD. WAS EVER OBTAINED BY THE APPELLANT OR THE COMPANY WHERE THE INVESTMENTS WERE MADE. 48. IN THE CIRCUMSTANCE, THE CLAIM OF THE APPELLAN T THAT HE HAS DISCHARGED HIS ONUS IN SO FAR AS THE SOURCE OF INVE STMENT MADE BY CONSOLIDATED UNIVERSAL IS CONCERNED CANNOT BE ACCEP TED. THE APPELLANT AT THE RELEVANT POINT OF TIME WAS CHAIRMA N AND MANAGING DIRECTOR OF THE WHERE THE INVESTMENT WAS MADE. THE EVIDENCE OF INVESTMENT WAS FOUND AT THIS RESIDENTIAL PREMISE. S INCE SUB SECTION (2) OF SECTION 158BB OF THE ACT GRANTS ENABLING POW ER TO THE ASSESSING OFFICER TO APPLY THE PROVISIONS OF SECTION 69 OF TH E ACT, IN THE CIRCUMSTANCES SO REQUIRED, THE ACTION OF THE ASSESS ING OFFICER IN THIS RESPECT IS REQUIRED TO HE HELD AS CORRECT. THE ADD ITION OF RS. 1.92 CRORE ON THIS ACCOUNT IS REQUIRED TO BE THEREFORE C ONFIRMED. 32. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED STAND OF THE ASSESSEE AS PUT FORTH BEFORE CIT(A). IT WAS SUBMIT TED THAT THE U.K. FIRM OF CHARTERED ACCOUNTANTS WERE AUDITORS OF CU AND THE S AME WAS REJECTED FOR NO VALID REASON. THE CIT(A) ALSO DID NOT ASK FOR A NY CONFIRMATION FROM IT(SS)A 645/MUM/2004 27 MR.MISTRY. IT WAS POINTED OUT THAT THE APPROVAL OF RBI CLEARLY REFERS TO THE NAME CU. THE LEARNED D.R. RELIED ON THE ORDER OF T HE CIT(A). 33. WE HAVE CONSIDERED THE RIVAL SUBMISSION. THE E VIDENCE ON RECORD SHOWS THAT REPL ENGINEERING LTD., A COMPANY INCORPO RATED IN INDIA OBTAINED PERMISSION OF THE DEPUTY CONTROLLER OF CAP ITAL ISSUES DATED 31.3.92, UNDER THE CAPITAL ISSUES (CONTROL) ACT, 19 47, AMONG OTHER THINGS, FOR ISSUE OF 1.92 CRORES TO NON-RESIDENTS ON REPATR IATION BASIS. AN APPLICATION FOR ALLOTMENT OF 192000 EQUITY SHARES O F RS.10 EACH WAS MADE BY CU AND PAYMENT OF RS.1.92 CRORES WAS MADE BY CHE QUE DRAWN ON HABIB BANK ZURICH, LONDON DATED 18.3.92. BESIDES THE ABO VE A CERTIFICATE OF MOORE STEPHENS, CHARTERED ACCOUNTANT, LONDON CONFIR MING THAT CU MADE INVESTMENTS IN REPL ENGINEERING LTD., HAS ALSO BEEN FILED. IN THE LIGHT OF THESE DOCUMENTS CAN IT BE SAID THAT THE ASSESSEE MA DE INVESTMENT OF RS.1.92 CRORES IN THE NAME OF CU. EVEN IF ONE WERE TO IGNORE ALL THE ABOVE EVIDENCE, THERE IS NO EVIDENCE ON RECORD BEFORE TH E AO TO SHOW THAT CU IS CONTROLLED BY THE ASSESSEE. THE SEIZED DOCUMENT, A S WE HAVE ALREADY SEEN THROWS NO LIGHT ON THIS ASPECT AND IT IS PURELY GUE SS WORK OF THE AO THAT THE ASSESSEE CONTROLS CU. WE ARE OF THE VIEW THE ADDITI ON HAS BEEN MADE BY THE AO IN AN ARBITRARY MANNER. THE CIT(A) ERRED IN CON FIRMING THE SAME ON IRRELEVANT REASONS. THE BURDEN OF PROOF WAS ON THE REVENUE TO SHOW THAT CU WAS CONTROLLED BY THE ASSESSEE. THE CIT(A) HAS HOW EVER PROCEEDED TO HOLD THAT THE ASSESSEE FAILED TO SHOW THAT CU WAS NOT CO NTROLLED BY HIM BY POINTING OUT IRRELEVANT REASONS. FOR THE REASONS G IVEN ABOVE, WE DIRECT THAT THE ADDITION CHALLENGED IN GR.NO.6 DESERVES TO BE D ELETED AND THE SAME IS DIRECTED TO BE DELETED. GR.NO.6 IS ACCORDINGLY ALL OWED. 34. GR.NO.9 RAISED BY THE ASSESSEE READS AS FOLLOWS : 9. ADDITION OF RS. 1,00,000 ON ACCOUNT OF ALLEGED LOAN TO SHRI DHAN SINGH (PARA 64 TO 71 OF CIT(A)S ORDER & PARA 11 OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 1 LAKH ON ACCOUNT OF ALLEGED LOAN T O ONE SHRI DHAN SINGH. IT(SS)A 645/MUM/2004 28 (B) YOUR APPELLANT SUBMITS THAT THE SAID PAYMENT OF RS. 1 LAKH WAS MADE BY SMT. ROSHAN PATEL, WIFE OF THE APPELLANT OU T OF THE AMOUNTS WITHDRAWN BY M/S. REPL ENGINEERING CO. LTD. AND FRO M M/S HAMLET. (C) YOUR APPELLANT PRAYS THAT SUCH ADDITION OF RS. 1,00,000/- WRONGLY MADE IN HIS HANDS BE DELETED. 35. SEIZED DOCUMENT A-1 PAGE-6 EVIDENCED THAT ONE M R.DHAN SINGH HAS TAKEN A LOAN OF RS.1 LAC FROM MRS.R.PATEL, WIFE OF THE ASSESSEE ON 5.3.1997 PROMISING TO REPAY THE SAME IN MONTHLY INSTALMENTS OF RS.2,500/-. THE AO PROCEEDED TO MAKE AN ADDITION OF RS.1 LAC IN THE HA NDS OF THE ASSESSEE ON THE ASSUMPTION THAT IT WAS THE ASSESSEE WHO GAVE MO NEY TO MR.DHAN SINGH. WHEN IT WAS POINTED BEFORE CIT(A) THAT THE SEIZED D OCUMENT REFERS TO THE WIFE OF THE ASSESSEE AND NOT THE ASSESSEE, THE CIT( A) HELD THAT NO CONFIRMATION OF MRS. R.PATEL WAS FILED AND THAT THE SOURCE OF MRS.R.PATEL WHICH WAS EXPLAINED AS WITHDRAWAL FROM REPL WAS NOT CAPABLE OF VERIFICATION. WE HAVE HEARD THE RIVAL SUBMISSIONS. A PERUSAL OF THE SEIZED DOCUMENT SHOWS THAT IT REFERS TO MRS. R.PATEL HAVIN G GIVEN THE LOAN. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE GAVE THE LOAN. THE AO HAS PROCEEDED ON A WRONG BASIS THAT IT WAS THE ASSE SSEE WHO GAVE THE MONEY EVIDENCED BY THE SEIZED DOCUMENT. THERE WAS NO EVIDENCE BEFORE THE AO TO DRAW SUCH PRESUMPTION. THE FACT IS THAT HUSB AND AND WIFE WERE LIVING TOGETHER IN ONE HOUSE. THE AO HAS WRONGLY C AST THE BURDEN ON THE ASSESSEE TO EXPLAIN THE SEIZED DOCUMENT. IN OUR VI EW THE ADDITION HAS BEEN MADE ARBITRARILY AND CONTRARY TO THE CONTENTS OF TH E SEIZED DOCUMENT. THE SAME IS DIRECTED TO BE DELETED. GR.NO.9 IS ALLOWED . 36. GR.NO.10 RAISED BY THE ASSESSEE READS AS FOLLOW S: 10. ADDITION OF RS.17,25,000/- ON ACCOUNT OF UNAC COUNTED ADVANCES FOR PURCHASE OF SHARES (PARA 72 TO 74 OF CIT(A) ORD ER & PARA 13 OF ASSESSMENT ORDER.) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITION OF RS.17.25 LAKH ON ACCOUNT OF ALLEGED ADV ANCES MADE TO 9 PERSONS ON THE BASIS OF LOOSE PAPERS SEIZED BY HO LDING THAT YOUR APPELLANT HAD PURCHASED CONTROLLING INTEREST IN A P OWER COMPANY SITUATED SOMEWHERE IN SOUTHERN INDIA. IT(SS)A 645/MUM/2004 29 (B) YOUR APPELLANT SUBMITS THAT THE LOOSE PAPERS DID NO T REPRESENT ANY INVESTMENT IN A POWER COMPANY AND HE HAD NOT MA DE ADVANCES TO SUCH PERSONS AS WAS ALLEGED. (C) YOUR APPELLANT PRAYS FOR DELETION OF RS. 17,25,000/ - MADE ON ACCOUNT OF SUCH ALLEGED ADVANCES. 37. THE AO MADE THE FOLLOWING OBSERVATIONS FOR MAKI NG THE AFORESAID IMPUGNED ADDITION: 13. SEIZED LOOSE PAPER NO.16 IS APPARENTLY IN THE ASSESSEES HANDWRITING SHOWING NAMES OF 9 PERSONS TO WHOM TOT AL AMOUNT ADVANCED IS SHOWN AT RS. 17.25. THE ASSESSEE WAS A SKED TO FURNISH DETAILED EXPLANATION AND IT WAS ALSO PROPOSED TO HO LD THAT THE SAME REPRESENTS CASH ADVANCES OF RS. 17,25,000/- IN ABSE NCE OF ANY EXPLANATION. AS NOTHING IS HEARD FROM THE ASSESSEE , THE SAME IS TREATED AS UNDISCLOSED INCOME FOR A.Y 1998-99. 38. BEFORE CIT(A), THE ASSESSEE POINTED OUT THAT T HE SAID LOOSE PAPER GIVES DETAILS OF HOLDING OF SHARES OF 9 PERSONS RE SIDING IN SOUTH INDIA IN A POWER COMPANY. THE OTHER DETAILS IN THE SAID LOOSE PAPERS RELATE TO THE HOLDING OF EACH OF THESE PARSONS IN THE SAID COMPAN Y. THE LOOSE PAPER ALSO INDICATES THE DESIGNATION OF THESE PERSONS. THE SAI D COMPANY IS ENGAGED IN GENERATION OF POWER AND IS LOCATED IN SOUTH INDIA. AS NOTED IN THE SAID LOOSE PAPER, DR. MAHALINGA AND MR. SWAMY ARE THE CH AIRMEN AND MANAGING DIRECTOR, RESPECTIVELY. IT WAS FURTHER EXPLAINED T HAT THE COMPANY REPL ENGINEERING LTD. ENGAGED IN THE BUSINESS OF WIND MI LLS WAS DESIROUS OF ACQUIRING AN INTEREST IN THE SAID COMPANY AND IT WA S IN THIS CONNECTION THAT THE INFORMATION WAS GATHERED AND NOTED IN THE LOOSE PAPER. HOWEVER, NO NEGOTIATION TOOK PLACE AND NO DEA1 MATERIALISED A S THE SAID REPL ENGINEERING LTD. DID NOT CONSIDER IT WORTHWHILE TO EVEN DISCUSS THE MERITS OF THE DEAL. IN THE CIRCUMSTANCES IT WAS SUBMITTED AS UNDER :- (I) THE SAID LOOSE PAPER DID NOT REPRESENT ANY INVE STMENT OR EXPENDITURE NOR DID IT REPRESENT ANY UNACCOUNTED INCOME OF THE ASSE SSEE. (II) THE FACTS PERTAINING TO LOOSE PAPER ARE EXPLAI NED. IT(SS)A 645/MUM/2004 30 (III) THE ADDITION WAS MADE MERELY ON THE BASIS OF LOOSE PAPER WHICH NOWHERE INDICATED ANY UNACCOUNTED PAYMENT OR INCOME AND THE SAME IN ANY CASE HAD NO RELATIONSHIP TO THE APPELLANT AND D ID NOT INDICATE ANY PAYMENT OF THE UNACCOUNTED INCOME OF THE ASSESSEE. 39. THE CIT(A) HELD AS FOLLOWS: 74. THE SUBMISSION MADE BY THE APPELLANTS REPRESE NTATIVE HAS BEEN CONSIDERED. AS INDICATED THEREIN, IT IS ACCEP TED THAT THE ENTRIES REFLECTED IN THE LOOSE PAPERS REFLECT CERTAIN PERSO NS HAVING INTEREST IN COMPANIES ENGAGED IN SIMILAR BUSINESS. HOWEVER, THE RE IS NO DISPUTE THAT IN THIS REGARD ALSO THAT THE INFORMATION FURNI SHED IS RATHER INCOMPLETE. THE APPELLANT HAS NOT BEEN ABLE TO FURN ISH THE NAME OF THE POWER COMPANY TO WHOM THESE NINE PERSONS ARE RE LATED TO. THERE IS NO REASON FOR THE APPELLANT TO HAVE THESE PAPERS IF THESE ONLY REFLECT THE HOLDING NOT IN CONNECTION WITH THE APPELLANTS INTEREST. THEREFORE, IT CANNOT BE SAID THAT THE ONUS THRUST UPON HIM IN TERMS OF SECTION 132(4A) OF THE ACT HAS BEEN DISCHARGED BY THE APPEL LANT. THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS TH EREFORE HELD CORRECT AND THE AMOUNT ADDED IS SUSTAINED. 40. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LOOSE PAPER SEIZED NOWHERE SUGGESTS ANY INVESTMENT BY THE ASSESSEE. THE SUBMISSIONS MADE BEFORE CIT(A) WERE REITERATED. TH E LEARNED D.R. RELIED ON THE ORDER OF THE CIT(A). 41. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE SEIZED PAPER NOWHERE MENTIONS ANY INVESTMENT BY ANYBODY. THE DOCUMENT I S A DUMB DOCUMENT. THERE IS NO CORROBORATIVE EVIDENCE BROUGHT ON RECOR D BY THE REVENUE TO SHOW THAT THE ASSESSEE MADE INVESTMENT OF RS.17.25 LACS. THE REVENUE SEEKS TO POINT OUT DEFECTS IN THE ASSESSEES EXPLAN ATION. IN THE FIRST PLACE THE SEIZED DOCUMENT SHOULD SHOW INVESTMENT BY THE A SSESSEE. IT IS ONLY THEREAFTER THE ONUS WILL BE ON THE ASSESSEE TO EXPL AIN THE SEIZED DOCUMENT. THAT WAY, THE REVENUE HAS CAST THE ONUS OF PROVING A NEGATIVE ON THE ASSESSEE. SUCH A COURSE IS NOT PERMISSIBLE, ESPECI ALLY IN BLOCK ASSESSMENT PROCEEDINGS. WE HOLD THAT THE ADDITION HAS BEEN MA DE ARBITRARILY AND THE SAME DESERVES TO BE DELETED AND THE SAME IS HEREBY DELETED. GR.NO.10 IS ACCORDINGLY ALLOWED. IT(SS)A 645/MUM/2004 31 42. GR.NO.11 READS AS FOLLOWS: 11. PART ADDITION OF RS. 28,500 IN RESPECT OF CASH SEIZED(PARA 75 TO 78 OF CIT(A)S ORDER & PARA 9 OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN PARTLY CONFIRMING AN ADDITION OF RS. 28,500/- OUT OF RS. 53,500/- CAS H FOUND IN THE COURSE OF SEARCH ACTION. (B) YOUR APPELLANT SUBMITS THAT SUCH CASH REPRESENT ED CASH ON HAND WITHDRAWN FROM TIME TO TIME BY THE APPELLANT AND SU CH PART DISALLOWANCE WAS INEXPLICABLE. (C) YOUR APPELLANT PRAYS FOR DELETION OF SUCH ADDIT ION. 43. THE AO MADE AN ADDITION OF RS.53,500/- MADE T O THE UNDISCLOSED INCOME OF THE ASSESSEE ON ACCOUNT OF CASH FOUND DU RING THE COURSE OF SEARCH PROCEEDINGS WHICH WAS SEIZED. BEFORE CIT(A), THE ASSESSEE EXPLAINED THAT THE SEIZED CASH REPRESENTED THE CASH ON HAND O F THE ASSESSEE AND HIS WIFE MRS. ROSHAN PATEL. THE SAID CASH WAS WITHDRAW N FROM THE BANK FROM TIME TO TIME BY THE ASSESSEE AND HIS WIFE FOR THE P URPOSES OF HOUSEHOLD EXPENDITURE. THE ASSESSEE SUBMITTED THAT:- (A) HE AND HIS WIFE ARE REGULARLY ASSESSED TO TAX O N A RESPECTABLE INCOME, (B) THEY HAVE INVESTMENTS MADE OUT OF ACCOUNTED SOU RCES (C) THEY DO NOT HAVE UNKNOWN SOURCES OF CASH INCOME (D) LARGE AMOUNTS ARE DRAWN IN CASH FROM THE BANK F OR MEETING THE HOUSEHOLD EXPENSES. THE CIT(A) FOUND THAT IN THE VARIOUS ASSESSMENT YEA RS FALLING WITHIN THE BLOCK, PERIOD, THE ASSESSEE HAD RECEIVED INCOME FRO M SALARY IN INDIA RANGING FROM RS. 45,000/- IN THE ASSESSMENT YEAR 1992-93 TO RS 5,20,800/- IN THE ASSESSMENT YEAR 1998-99 (THE LATTER ENDING AFTER TH E SEARCH PERIOD). THE CIT(A) WAS OF THE VIEW THAT CONSIDERING THE MAGNITU DE OF SALARY RECEIVED BY THE ASSESSEE IN VARIOUS ACCOUNTING YEARS FALLING W ITHIN THE BLOCK PERIOD IT WOULD RATHER BE NOT JUSTIFIED TO HOLD THAT THE ENTI RE AMOUNT OF CASH FOUND IN THE COURSE OF SEARCH AS UNEXPLAINED. HE HELD THAT IT WOULD BE REASONABLE IF CONSIDERING THE SALARY INCOME OF THE ASSESSEE T O HOLD THAT THE AMOUNT OF IT(SS)A 645/MUM/2004 32 CASH TO THE EXTENT OF RS 25000/- STANDS EXPLAINED W HICH WOULD BE A NORMAL SITUATION IN CASE OF AN INDIVIDUAL HAVING SALARY IN COME OF THE MAGNITUDE OVER THE PERIOD OF TIME. THEREFORE, OUT OF THE ADDI TION OF RS 53,500/- MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT WHILE THE ADDITION OF RS 25,000/- WAS DELETED, THE REMAINING ADDITION OF RS 28,500/- WAS CONFIRMED. 44. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED THE AFORESAID GROUND OF APPEAL BEFORE THE TRIBUNAL. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. CONSIDERING THE STATUS OF THE F AMILY AND THE EXPLANATION OF THE ASSESSEE, THE ADDITION OF RS.28,500 IS DIREC TED TO BE DELETED. THE SOURCE, CONSIDERING THE ALLEGATIONS AGAINST THE ASS ESSEE SHOULD HAVE BEEN CONSIDERED AS EXPLAINED. WHEN IT COMES TO EXPLANAT ION OF CASH OF RS.28,500 THE REVENUE TAKES A STAND CONTRARY TO THE ONE TAKEN WHILE MAKING THE OTHER ADDITIONS. WE ARE OF THE VIEW THAT THE ADDITION DE SERVES TO BE DELETED AND THE SAME IS DIRECTED TO BE DELETED. GR.NO.11 IS AL LOWED. 45. GR.NO.12 READS AS FOLLOWS: 12. ADDITION OF RS. 41,500/- ON ACCOUNT OF SEIZED JEWELLERY(PARA 79 TO 82 OF CIT(A)S ORDER & PARA 9 OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION OF RS. 41,500/- ON ACCOUNT OF SEIZED JEWEL LERY, (B) YOUR APPELLANT SUBMITS THAT SUCH JEWELLERY WAS ACQUIRED FROM TIME TO TIME FORM ACCOUNTED FUNDS AND WAS IN ACCORDANCE WITH THE STATUS OF THE FAMILY. (C) YOUR APPELLANT PRAYS THAT SUCH AN ADDITION MADE WITHOUT ANY BASIS BE DELETED. 46. IN THE COURSE OF SEARCH PROCEEDINGS JEWELLERY WORTH RS 1,06,448/- WAS FOUND IN THE LOCKER WHILE JEWELLERY WORTH RS 97,558 /- WAS FOUND AT THE RESIDENTIAL PREMISE. OUT OF THIS JEWELLERY FOUND, J EWELLERY VALUED AT RS 41,500/- WAS SEIZED. THE ASSESSING OFFICER HAS HELD THE INVESTMENT IN THE IT(SS)A 645/MUM/2004 33 SAID JEWELLERY SEIZED AS UNEXPLAINED, AGAIN ON ACCO UNT OF FAILURE ON THE PART OF THE ASSESSEE TO OFFER ANY EXPLANATION IN REGARD TO THE SOURCE OF INVESTMENT MADE THEREIN. 47. BEFORE CIT(A), THE ASSESSEE EXPLAINED THAT TH E JEWELLERY BELONGED TO THE WIFE OF THE ASSESSEE AND THE ASSESSEE. IT WAS EXPLAINED TO THE SEARCH PARTY DURING THE COURSE OF SEARCH AT THE TIME OF RE CORDING OF STATEMENT ON OATH REGARDING THE ENTIRE JEWELLERY. IT WAS SUBMIT TED THAT THE A) THE ASSESSEE AND HIS WIFE ARE REGULARLY ASSESSED TO TAX ON A RESPECTABLE INCOME.(B) THEY HAVE INVESTMENTS MADE OUT OF ACCOUN TED SOURCES (C) THEY DO NOT HAVE UNKNOWN SOURCES OF CASH INCOME (D) LARG E AMOUNTS ARE DRAWN IN CASH FROM THE BANK FOR MEETING THE HOUSEHOLD EXP ENSES PART OF THESE AMOUNT COULD HE TAKEN TO HAVE BEEN UTILIZED FOR ACQ UIRING SMALL ORNAMENTS. IT WAS ALSO REITERATED THAT THE ASSESSEE IS FROM A WEALTHY FAMILY AND IS AGED 56 YEARS AND MARRIED SOME 30 YEARS THEREFORE A TOTA L FAMILY HOLDING OF RS. 2,04,006 IN ALL OF AND ORNAMENTS SHOULD BE CONSIDER ED TO BE REASONABLE. 48. THE CIT(A) HOWEVER CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT ASSUMING THE FACT THAT THE ASSESSEE AS WELL AS HIS WIFE WILL HAVE THE SAME ADDITIONAL JEWELLERY LYING IN THEIR PERSON OR ABROA D WHERE THEY STAYED FOR A CONSIDERABLE PERIOD OF TIME AND THE FACT THAT THEY WERE NOT IN INDIA WHEN THE SEARCH ACTION TOOK PLACE, AND CONSIDERING FURTH ER THAT THE ASSESSING OFFICER HAS ALREADY HELD THAT THE SUBSTANTIAL PORTI ON OF THE JEWELLERY THAT WAS NOT SEIZED STANDS EXPLAINED, THERE IS NO REASON FOR INTERFERING IN HIS DECISION OF TAXING THE AMOUNT OF RS. 41,500/- BEING INVESTMENT IN JEWELLERY SOURCE OF WHICH REMAINED UNSUBSTANTIATED AS PART OF THE UNDISCLOSED INCOME OF THE APPELLANT. 49. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED THE AFORESAID GROUND OF APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. FOR THE REASONS GIVEN WHILE DECIDING GR.NO.11, WE DELETE THE IT(SS)A 645/MUM/2004 34 ADDITION SUSTAINED BY CIT(A). THE STAND TAKEN BY T HE REVENUE IS CONTRADICTORY. THE BASIS OF ADDITION IS ONLY REJEC TION OF ASSESSEES EXPLANATION, IGNORING THE REAL STATE OF AFFAIRS. W E THEREFORE DIRECT THAT THE ADDITION BE DELETED. GR.NO.12 IS ALLOWED. 50. GR.NO.13 READS AS FOLLOWS: 13. ADDITION ON ACCOUNT OF INVESTMENT IN ELECTRON IC GOODS RS.5,00,000/- (PARA 83 TO 86 OF CIT(A)S ORDER & PA RA 9 OF ASSESSMENT ORDER.) (A) THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I N CONFIRMING THE ADDITION OF RS. 5,00.000/- ON ACCOUNT OF ELECTRONIC GADGETS FOUND AT THE RESIDENTIAL PREMISES DURING THE COURSE OF SURVE Y. (B) YOUR APPELLANT SUBMITS THAT SUCH ITEMS REPRESEN TED GOODS RECEIVED FROM ONE MR. CREEK OF M/S RAYCHEM LTD., USA WHO USE D TO STAY AT THE HOUSE OF THE APPELLANT WHO HAD GIVEN THE SAME ON LE ASE TO MR. CREEK WHILE HE WAS ON DEPUTATION IN INDIA WITH M/S RAYCHE M LTD AND WITHOUT PREJUDICE SUBMITS THAT THE HOUSE IN ANY CAS E DID NOT BELONG TO THE APPELLANT. (C) YOUR APPELLANT PRAYS THAT SUCH ADDITION MADE ON AN ASSUMPTION AND WITHOUT ANY BASIS BE DELETED. 51. THE AO MADE AN ADDITION OF RS 5 LAKHS ON ACCOUN T OF CERTAIN COSTLY ELECTRONIC GADGET FOUND AT THE RESIDENTIAL PREMISE OCCUPIED BY THE ASSESSEE IN THE COURSE OF SEARCH AND SEIZURE PROCEEDINGS. IN THE OPINION OF THE ASSESSING OFFICER THE SOURCE OF INVESTMENT IN THE ACQUISITION OF THE SAID ELECTRONIC GOODS REMAINED TO BE EXPLAINED AND THER EFORE THE ADDITION OF RS 5 LAKHS DETERMINED AS COST OF THE GODS FOUND IS CALLE D FOR, TO THE UNDISCLOSED INCOME OF THE ASSESSEE IN TERMS OF SECTION 69 OF T HE ACT. 84. IN RESPECT OF THE ACTION OF THE ASSESSING OFFICER THE APPELLANTS REPRESENTATIVE HAS MADE THE FOLLOWING SUBMISSION. 52. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE HE WAS A PERSON WHO HAS STAYED IN AND OUT OF INDIA FOR MOST OF HIS LIFE HE IS FROM A WEALTHY FAMILY AND IT(SS)A 645/MUM/2004 35 HAD LARGE WITHDRAWALS FROM BANK REGULARLY. HE IS A RECOGNIZED PERSON IN THE SOCIETY AND HENCE HAS LARGE CONTACTS. THE ASSESSEE POINTED OUT THAT THE HOUSE OF THE ASSESSEE WAS OCCUPIED BY MR AND MRS JU DY AND DAVE CREEK OF U.S.A. UNDER A LEASE FOR A COUPLE OF YEARS. MR. CRE EK WAS ON EMPLOYMENT WITH RAYCEM LTD U.SA AND WAS PROVIDED WITH VARIOUS ELECTRONIC GOOD FOR HOUSEHOLD USE WHILE ON DEPUTATION IN INDIA. THE COU PLE LEFT THESE GOODS ON THEIR DEPARTURE. A CONFIRMATION TO THIS EFFECT FRO M THEM WAS ALSO FILED BEFORE CIT(A). 53. THE CIT(A) HOWEVER DID NOT ACCEPT THE SUBMISSI ON. HE WAS OF THE VIEW THAT THE CONFIRMATION LETTER DATED 4/5/2000 SHOW TH AT A CLAIM WAS MADE THEREIN THAT ONE SHRI CREEK WHO STAYED IN THE RESID ENTIAL PREMISE IN THE PERIOD BETWEEN 1982 AND 84 HAD MADE THE INVESTMENT. HE FOUND THAT THE SEARCH PROCEEDINGS TOOK PLACE IN DECEMBER 1997. TH EREFORE 13 YEARS HAD GONE PAST BETWEEN THE TIME MR CREEK LEFT THE PREMIS E AND THE TIME THE SEARCH TOOK PLACE. HE WAS THEREFORE OF THE VIEW TH AT IT WAS DIFFICULT TO ACCEPT THAT THE ELECTRONIC GADGETS FOUND AT THE TIME OF SE ARCH PROCEEDINGS WERE THAT OLD. HE ALSO HELD THAT NO EFFORT HAS BEEN MADE IN THIS DIRECTION ON BEHALF OF THE ASSESSEE TO PROVE THE AGE OF THIS ELECTRONIC IT EMS. 54. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS RAISED THE AFORESAID GROUND OF APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE ADDITION SUSTAINED IS WITHOUT ANY BASIS. THE EXPLANATION OF THE ASSESSEE IS PRIMA FA CIE SATISFACTORY. THE CONFIRMATION OF DAVE AND JUDY CREEK IS AT PAGE-90 O F THE PAPER BOOK. IN THE LIGHT OF THE CONFIRMATION THE ONUS CAST ON THE ASSE SSEE IS PRIMA FACIE DISCHARGED. THE INVENTORY OF GOODS DOES NOT RECORD ANY VALUE OR THE YEAR OF MAKE OF THE VARIOUS ITEMS OF FURNITURE. IN SUCH CI RCUMSTANCES, THE ADDITION SHOULD BE HELD TO BE ONE MADE ON PRESUMPTIONS. KEE PING OVERALL VIEW OF THE CIRCUMSTANCES, WE DIRECT THAT THE ADDITION MADE BE DELETED. GR.NO.13 IS ACCORDINGLY ALLOWED. IT(SS)A 645/MUM/2004 36 55. GR.NO.2 REGARDING STATUS OF THE ASSESSEE READS AS FOLLOWS: 2. STATUS OF THE APPELLANT (PARA 24 TO 36 OF CIT(A) S ORDER & PARA 36 OF ASSESSMENT ORDER) (A) THE LEARNED CIT(A) FURTHER ERRED IN LAW AND ON FACTS IN HOLDING THAT THE STATUS OF THE APPELLANT WAS THAT OF A RESIDENT UNDER THE INCOME TAX ACT AND ALSO ERRED IN HOLDING THAT ADEQUATE EVI DENCES WERE NOT FURNISHED IN SUPPORT OF THE CLAIM OF THE APPELLANT THAT HE WAS A NON RESIDENT OR A RESIDENT BUT NOT ORDINARILY RESIDEN T. (B) YOUR APPELLANT STRONGLY SUBMITS THAT ALL THE PO SSIBLE EVIDENCES INCLUDING THE RETURNS FILED IN INDIA AND OUTSIDE IN DIA AS ALSO THE COPIES OF PASSPORT DULY AUTHENTICATED BY THE INDIAN HIGH COMMISSION AND NOTARY WERE FILED AND THESE RECORDS CLEARLY CON FIRMED THAT YOUR APPELLANT WAS A NON RESIDENT OR A RESIDENT BUT N OT ORDINARILY RESIDENT FOR THE BLOCK PERIOD. (C) YOUR APPELLANT PRAYS THAT HIS STATUS ACCEPTED A S THAT OF NON RESIDENT OR A RESIDENT BUT NOT ORDINARILY RESIDEN T. 56. THE LAW IN THIS REGARD IS CONTAINED IN SEC.6 OF THE ACT. SEC.6 OF THE ACT, AS IT EXISTED PRIOR BETWEEN 1983 AND ITS AMEN DMENT IN 1990 READ AS FOLLOWS: 6. RESIDENCE IN INDIA.--FOR THE PURPOSES OF THIS AC T-- (1) AN INDIVIDUAL IS SAID TO BE RESIDENT IN INDIA I N ANY PREVIOUS YEAR, IF HE-- (A) IS IN INDIA IN THAT YEAR FOR A PERIOD OR PE RIODS AMOUNTING IN ALL TO ONE HUNDRED AND EIGHTY-TWO DAYS OR MORE ; OR (B) OMITTED BY FA 1982, W.E.F. 1-4-83. (C) HAVING WITHIN THE FOUR YEARS PRECEDING THAT YEAR BEEN IN INDIA FOR A PERIOD OR PERIODS AMOUNTING IN ALL TO THREE H UNDRED AND SIXTY- FIVE DAYS OR MORE, IS IN INDIA FOR A PERIOD OR PERI ODS AMOUNTING IN ALL TO SIXTY DAYS OR MORE IN THAT YEAR. EXPLANATION.--IN THE CASE OF AN INDIVIDUAL, BEING A CITIZEN OF INDIA,-- (A) WHO LEAVES INDIA IN ANY PREVIOUS YEAR FOR THE P URPOSES OF EMPLOYMENT OUTSIDE INDIA, THE PROVISIONS OF SUB-CAL USE (C) SHALL APPLY IN RELATION TO THAT YEAR AS IF FOR THE WORDS, 'SIXT Y DAYS', OCCURRING THEREIN, THE WORDS 'ONE HUNDRED AND EIGHTY-TWO DAYS ' HAD BEEN SUBSTITUTED ; IT(SS)A 645/MUM/2004 37 (B) WHO, BEING OUTSIDE INDIA, COMES ON A VISIT TO I NDIA IN ANY PREVIOUS YEAR, THE PROVISIONS OF SUB-CLAUSE (C) SHALL APPLY IN RELATION TO THAT YEAR AS IF FOR THE WORDS 'SIXTY DAYS', OCCURRING TH EREIN, THE WORDS 'NINETY DAYS' HAD BEEN SUBSTITUTED. (6) A PERSON IS SAID TO BE 'NOT ORDINARILY RESIDENT ' IN INDIA IN ANY PREVIOUS YEAR IF SUCH PERSON IS-- (A) AN INDIVIDUAL WHO HAS NOT BEEN RESIDENT IN INDI A IN NINE OUT OF THE TEN PREVIOUS YEARS PRECEEDING THAT YEAR, OR HAS NOT DURING THE SEVEN PREVIOUS YEARS PRECEDING THAT YEAR BEEN IN IN DIA FOR A PERIOD OF, OR PERIODS AMOUNTING IN ALL TO, SEVEN HUNDRED A ND THIRTY DAYS OR MORE ; OR IT IS NOT THE CASE OF THE ASSESSEE THAT EXPLN.(A) T O SEC.6(1)(C) OF THE ACT WILL APPLY, AS HE HAD NOT GONE OUT OF INDIA FOR THE PURP OSE OF EMPLOYMENT. HENCE EXPLN.(B) TO SEC.6(1)(C) OF THE ACT HAS TO BE APPLIED. THE PERIOD OF 90 DAYS IN CLAUSE (B) OF EXPLN. TO SEC.6(1)(C) WAS AME NDED BY THE FINANCE ACT, 1990 W.E.F. 1-4-90 I.E., FOR AY 90-91 AS 150 DAYS A ND BY THE FINANCE ACT, 1994 W.E.F. 1-4-95 I.E., FOR AY 95-96 AND THEREAFTE R AS 180 DAYS. 57. THUS THE PERIOD OF STAY IN INDIA DURING THE PRE VIOUS YEAR RELEVANT TO AY 87-88 TO 89-90, SHOULD BE LESS THAN 90 DAYS, IF THE ASSESSEE IS TO BE CONSIDERED A NON-RESIDENT. FOR AY 90-91 TO 94-95, THE PERIOD OF STAY IN INDIA DURING THE PREVIOUS YEARS RELEVANT TO AY 90-9 1 TO 94-95, SHOULD BE LESS THAN 150 DAYS, IF THE ASSESSEE IS TO BE CONSID ERED A NON-RESIDENT. FOR AY 95-96 TO 97-98 THE PERIOD OF STAY THE IN INDIA D URING THE PREVIOUS YEARS RELEVANT TO AY 95-96 TO 97-98, SHOULD BE LESS THAN 180 DAYS, IF THE ASSESSEE IS TO BE CONSIDERED A NON-RESIDENT. 58. THE FACTUAL ASPECT REGARDING THE ACTUAL PERIOD OF STAY OF THE ASSESSEE IN INDIA AS GIVEN BY THE ASSESSEE BEFORE CIT(A) AND THE AOS REMAND REPORT ON SUCH CLAIM CAN BE SUMMARISED IN THE FORM OF THE FOLLOWING CHART. IT(SS)A 645/MUM/2004 38 FINANCIAL YEAR ASSESSMENT YEAR DAYS IN INDIA ----------------------------------- AS PER AO AS PER ASSESSEE STATUS U/S.6(1)(A) ----------------------------------- AS PER A.O AS PER ASSESSEE 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 156 149 142 178 152 169 140 160 152 167 181 91 149 131 172 152 160 138 154 152 165 176 RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT NON RESIDENT FROM THE ABOVE CHART, EVEN ACCORDING TO FACTS AS AC CEPTED BY AO, THE ASSESSEE SHOULD BE CONSIDERED NON-RESIDENT FOR AY 9 0-91 AND 94-95 AS HE WAS IN INDIA FOR LESS THAN 150 DAYS. THE ASSESSEE SHOULD BE CONSIDERED AS NON-RESIDENT IN AY 95-96 TO 98-99 AS HE WAS IN INDI A FOR LESS THAN 182 DAYS. HENCE, FOR THESE YEARS THE ASSESSEE SHOULD B E CONSIDERED AS NON- RESIDENT. WE HOLD ACCORDINGLY. 59. AS FAR AS THE OTHER AYS COMPRISED IN THE BLOCK PERIOD ARE CONCERNED, THE QUESTION AS TO WHETHER THE ASSESSEE CAN BE CONS IDERED AS RESIDENT BUT NOT ORDINARY RESIDENT CANNOT BE DECIDED AS FACTS WI TH REGARD TO HIS STATUS IN NINE OUT OF THE TEN PREVIOUS YEARS ARE NOT AVAILABL E. WE ARE OF THE VIEW THAT IN VIEW OF THE DECISION ON MERITS OF THE VARIOUS AD DITIONS, THIS ASPECT DOES NOT REQUIRE ANY ADJUDICATION. WE THEREFORE TREAT T HE ISSUE AS ACADEMIC. CONSEQUENTLY, THE ISSUE WITH REGARD TO BENEFITS OF DTAA CLAIMED BY THE ASSESSEE RAISED IN GR.NO. 3 IS ALSO HELD TO BE ACAD EMIC CALLING FOR NO ADJUDICATION AT PRESENT. THE OTHER GROUNDS ARE EIT HER GENERAL OR CONSEQUENTIAL CALLING FOR NO SPECIFIC ADJUDICATION. 60. WE MAY ADD THAT SINCE THE STATUS OF THE ASSESS EE IS HELD TO BE NON RESIDENT FOR AY 90-91 AND 94-95 AND AY 95-96 TO 98- 99, ONLY INCOME WHICH ACCRUES OR ARISES TO THE ASSESSEE IN INDIA CAN BE B ROUGHT TO TAX IN INDIA BY THE REVENUE. ADMITTEDLY, THE SOURCE OF INCOME OF T HE ASSESSEE FOR THE IT(SS)A 645/MUM/2004 39 AFORESAID A.Y.S IS NOT FROM INDIA, I.E., HAS NOT AC CRUED OR ARISEN OR DEEMED TO HAVE ACCRUED OR ARISEN TO THE ASSESSEE IN INDIA. EVEN ON THIS GROUND THE ADDITIONS MADE IN THE AFORESAID A.Y.S IN WHICH IS T HE ASSESSEE IS HELD TO BE NON-RESIDENT DESERVES TO BE DELETED. 61. BEFORE PARTING, WE HAVE TO REFER TO ONE VERY I MPORTANT SUBMISSION MADE BY THE LEARNED COUNSEL FOR ASSESSEE BEFORE US. HE SUBMITTED THAT EXCEPT FOR THE BLOCK PERIOD IN BLOCK ASSESSMENT, THE REVENUE H AS NOT IN THE PAST 14 YEARS AFTER SEARCH TAKEN ANY PROCEEDINGS AGAINST TH E ASSESSEE ON THE GROUND THAT HE WAS A RESIDENT AND HIS ENTIRE GLOBAL INCOME IS TO BE TAXED IN INDIA. THIS ACCORDING TO US SHOWS THAT THE REVENUE IS NOT CONVINCED THAT THE STATUS OF THE ASSESSEE IS RESIDENT. IN THIS RE GARD WE ALSO NOTICE THAT THE VERY BASIS OF SEARCH WAS THAT REPL WAS CLAIMING BOG US DEPRECIATION. THE ABOVE FACTUAL POSITION ALSO SHOWS THAT THE ADDITION S CHALLENGED IN THE VARIOUS GROUNDS BY THE ASSESSEE WERE MADE ON THE BA SIS OF PRESUMPTIONS AND SURMISES NOT ON THE BASIS OF SEIZED MATERIAL SH OWING EXISTENCE OF UNDISCLOSED INCOME. 62. THE APPEAL OF THE ASSESSEE IS THUS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF NOV.2011 SD/- SD/- (B.RAMAKOTAIAH ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 25 TH NOV.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. IT(SS)A 645/MUM/2004 40 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 21/11/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 22/11/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER
Other Referred Cases
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Laws Referred To
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1:1 Consultation on Legal Requirements
₹1
1:1 Consultation on Tax Litigation
₹0
1:1 Consultation on Startup Fundraising
₹5000
Contractor Indemnity Agreement
₹0
Rectification Letter - Application for rectification of mistake under Section 154 of I.T. Act
Mehul₹0
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