M/s Katpadi (P) Ltd., Kolkata V. A.C.I.T, Central Circle-XXIV, Kolkata

ITSSA 71/KOL/2013

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2045 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-03-2016
• Assessment Year: misc
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K TULSIYAN SH
• Assessee Lawyers: EPASS KOLKATA
• Keywords: Bogus purchase; Search and seizure; Share purchase agreement; Block assessment
• Section: 131; 132; 12; 144; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER IT (SS) A NO. 71 / KOL / 2013 BLOCK PERIOD 01.041996 TO 07.05.2002 M/S KATPADI TRADING (P) LTD., 133, CANNING STREET, 3RD FLOOR, KOLKKATA-700 001 [ PAN NO.AABCK 0676 J ] V/S . ACIT, CENTRAL CIRCLE- XXIV, 110, SHANTIPALLY, E.M.BYE PASS, KOLKATA-700107 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S.K.TULSIYAN, ADVOCATE /BY RESPONDENT SHRI RAJAT SUBHRA BISWAS, CIT-DR /DATE OF HEARING 30-03-2016 /DATE OF PRONOUNCEMENT 27-04-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS), CENTRAL-III, KOLKATA DATED 25 .03.2013. BLOCK ASSESSMENT WAS FRAMED BY ACIT, CC-XXIV, KOLKATA U/S 158BD/144 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 30.11.2006 FOR THE BLOCK PERIOD FROM 01.04.1996 TO 07.05.2002. GROUNDS RAISED BY ASSESSEE ARE AS UNDER:- 1. THE ORDERS PASSED BY THE LOWER AUTHORITIES ARE ARBITRARY, ERRONEOUS, WITHOUT PROPER REASONINGS, INVALID AND BAD IN LAW, TO THE EXTENT TO WHICH THEY ARE PREJUDICIAL TO THE INTERESTS OF THE APPELL ANT. IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) ERRED IN UPHOLDING THE VALIDITY OF THE PROCEEDING I NITIATED U/S 158BD OF THE INCOME-TAX ACT, 1961, IN CASE OF THE APPELLANT COMPANY, IN SPITE OF THE FACT THAT DURING THE COURSE OF THE SEARCH PROCE EDINGS AT THE PREMISES OF THE UIC GROUP, NO INCRIMINATING MATERIA LS AGAINST THE APPELLANT COMPANY HAD BEEN FOUND. 3.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADDITION OF THE SUM O F 14,75,000/- U/S 68 OF THE ACT,, BY CONSIDERING THE RECEIPT OF THE SAID AMOUNT AS UNEXPLAINED IN SPITE OF THERE BEING AMPLE EVIDENCES ABOUT THE GENUINENESS OF THE SAID RECEIPT OF MONEY BY THE APP ELLANT. 3.(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN NOT TAKING INTO CONSIDERATION THE F ACT THAT THE APPELLANT HAD NOT BEEN PROVIDED WITH OPPORTUNITY BY THE LEARN ED AO TO CROSS- EXAMINE THE DEPOSITIONS OF FOUR WITNESS; AND THEREA FTER IN RELYING ON SUCH UNVERIFIED DEPOSITIONS. SHRI S.K.TULSIYAN, LD. AUTHORIZED REPRESENTATIVE AP PEARING ON BEHALF OF ASSESSEE AND SHRI RAJAT SUBHRA BISWAS, LD. DEPARTME NTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. FIRST WE TAKE UP ASSESSEES GROUND NO. 2 REGARDI NG THE VALIDITY OF THE PROCEEDINGS INITIATED UNDER SECTION 158BD OF THE AC T ON THE GROUND THAT THERE WAS NO INCRIMINATING MATERIAL FOUND AT THE TIME OF SEARCH. 2.1 BEFORE CARVING OUT THE SPECIFIC ISSUE OF THE AP PEAL LET US UNDERSTAND IN BRIEF THE HISTORY OF THE CASE. THERE WAS A SEARCH A ND SEIZURE OPERATION IN THE CORPORATE OFFICE OF UIC GROUP OF COMPANIES ON DATED 7 TH MAY 2002. DURING SEARCH SHARE SCRIPTS ALLOTTED IN THE NAME OF VARIOU S COMPANIES INCLUDING ASSESSEE BY UIC GROUP WERE FOUND AND SEIZED. THE AS SESSEE HAS MADE INVESTMENT IN THE FORM OF SHARE CAPITAL IN THE COMP ANIES OF UIC GROUP. AFTER SEARCH THE ENQUIRIES WERE CONDUCTED FOR ASCERTAININ G THE SOURCE OF CASH IN THE ASSESSEE COMPANY WHICH WAS INVESTED IN THE UIC GROU P. AS A RESULT OF ENQUIRY IT WAS REVEALED THAT THE PART OF THE SHARE MONEY WAS RECEIVED BY THE ASSESSEE FROM THE FOLLOWING 4 PERSONS AS DETAILED U NDER : IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 3 S.NO. NAME OF THE PERSON A/C NO.BANK NAME AMOUNT 1. SHRI RAJENDRA KUMAR SURANA, 4886 FEDERAL BANK B URRA BAZAR BRANCH-KOLKATA RS.5,00,000/ 2. SHRI SUNIL KR. JAIN, 4914 FEDE RAL BANK BURRA BAZAR BRANCH-KOLKATA RS. NIL 3. SURENDRA KR. HIRAWAT 4933 FEDERAL BANK BURRA BAZAR BRANCH-KOLKAT RS.2,00,000/. 4. SHRI SHANKAR LAL GODH, 4934 FEDERAL BA NK BURRA BAZAR BRANCH-KOLKATA RS.7,75,000/- TOTAL RS.14,75,000/ - . THE AFORESAID FOUR PERSONS DEPOSITED SUBSTANTIAL CA SH IN THEIR RESPECTIVE BANK ACCOUNTS AND SUBSEQUENTLY TRANSFERRED THE MONEY TO VARIOUS COMPANIES INCLUDING THE PRESENT ASSESSEE. FINALLY IN TURN THE SE COMPANIES AND THE ASSESSEE TRANSFERRED THE FUND TO THE GROUP OF UIC C OMPANIES. IT WAS ALSO REVEALED THAT MR. SANDIP KR. SINGHEE, THE DIRECTOR OF THE ASSESSEE COMPANY ACTED AS INTRODUCER IN THE OPENING OF THE AFORESAID BANK ACCOUNTS. THE AFORESAID 4 PERSONS WERE PRODUCED BEFORE THE DDIT ( INV) (UNIT III) (4) BY MR. SANDIP KR. SINGHEE AND THEIR DEPOSITIONS WERE TAKEN , BUT LATER THESE PERSONS COULD NOT BE TRACED IN SPITE SUMMONS ISSUED UNDER S ECTION 131 OF THE ACT AND THE SUMMONS WERE ALSO NOT SERVED AT THE GIVEN ADDRE SSES. ACCORDINGLY THE AO COULD NOT VERIFY IDENTITY, GENUINENESS AND CREDI T WORTHINESS OF THE PARTIES IN RELATION TO THE AFORESAID SHARES TRANSACTION, SO HE INITIATED PROCEEDINGS UNDER SECTION 158BD AGAINST THE ASSESSEE AFTER RECO RDING THE SATISFACTION NOTE WHICH IS REPRODUCED BELOW:- ' A SEARCH AND SEIZURE OPERATION WAS CONDUCTED IN THE UIC GROUP OF CASES ON 7/5/2002. IN THE COURSE OF SEARCH IN THE CORPORATE OFFICE OF THESE GROUP SHARE SCRIPTS WORTH RS.11,63,75,000/- ISSUED BY DIFFERENT COMPANIES BY THESE GROUP WERE FOUND. OUT OF THESE SCRIPTS IT WAS FOUND THAT A LARGE NUMBER OF SHARES HAVE BEEN ALLOTTED IN THE NAME OF VARIOUS COMPANIES CONTROLLED AND MANAGED BY OUTSIDERS VIZ. SHRI RAJESH. KUMAR JAJODIA AND SH RI SANDIP KUMAR SINGHI. IN THE COURSE OF POST SEARCH ENQUIRY LAUNCHED IN CO NNECTION. WITH ASCERTAINING THE SOURCE OF THE SHARE CAPITAL CONTRIBUTED BY THE SE OUTSIDE COMPANIES, IT WAS GATHERED THAT A PART OF THE FUNDS OF THE FOLLOW ING SHARE HOLDING COMPANIES HAD COME FROM FOUR BANK ACCOUNTS I.E. ACC OUNT NO. 4886, 4914, 4934 AND 4933 MAINTAINED WITH FEDERAL BANK OF INDIA , SURA BAZAR BRANCH, KOLKATA AND STANDING IN THE NAME OF SHRI RAJENDRA K UMAR SURANA, SHRI SURTIL KUMAR JAIN; SHRI SHANKARLAL GODH AND SHRI SURENDRA KUMAR HIRAUIAI AND SHRI SHANKARLAL GODH RESPECTIVELY APART FROM THE ABOVE MENTIONED COMPANIES THERE EXISTS SOME OTHER COMPANIES (NOT SHAREHOLDERS IN UIC GROUP OF COMPANIES) CONTROLLED BY SHRI SANDIP KUMAR SINGHI WHICH HAVE ALSO RECEIVED MONEY FROM THE BANK ACCOUNTS OF THE AFORES AID FOUR PERSONS. THE NAMES OF THESE COMPANIES ARE INDICATED BELOW:- IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 4 KATPADI TRADING (P) LTD. 91 NS ROAD KOLKATA 700001 ENQUIRY HAS FURTHER REVEALED THAT THE AFORESAID FOU R PERSONS DEPOSITED SUBSTANTIAL CASH IN THEIR FOUR BANK ACCOUNTS AND TH AT THESE FOUR PERSONS ARE NOT TRACEABLE. SUMMONS U/S. 131 OF THE IT ACT, 1961 COULD NOT BE SERVED IN THEIR GIVEN ADDRESSES. IT ESTABLISHES THAT FICTITIO US BANK ACCOUNTS WERE OPENED IN THE NAME OF THOSE NAME OF THOSE FOUR PERSONS. IT WAS FURTHER OBSERVED THAT BANK ACCOUNTS WERE INTRODUCED BY SHRI; SANDIP KUMAR SINGHI. SINCE THE CASH FROM THESE FOUR ACCOUNTS HAD TRAVELED TO THE' ABOVE NAMED COMPANIES OF SHRI RAJESH KUMAR JAJODIA AND SHRI SARIDIP KUMAR SINQNI, I HAVE STRONG REASONS TO BELIEVE THAT THE ABOVE NAMED COMPANIES CONTROLLE D BY SHRI RAJESH KUMAR JAJODIA AND SHRI SANDIP KUMAR SINGHI HAVE ROLE IN C HANNELING THEIR OWN MONEY THROUGH THESE BANK ACCOUNTS. UNDER THE CIRCUM STANCES PROCEEDINGS U/S. 158BD OF THE I T. ACT, 1961 ARE REQUIRED TO BE INITIATED IN THE HANDS OF THE ABOVE NAMED TWENTY COMPANIES (13 + 7 = 20) FOR BRIN GING THE UNDISCLOSED INCOME OF THOSE COMPANIES INTO THE TAX NET. IN VIEW OF ABOVE THE AO ISSUED NOTICE U/S 158BD OF THE ACT FOR FILING THE INCOME TAX RETURN OF ITS TOTAL INCOME INCLUDING UND ISCLOSED INCOME FOR THE BLOCK PERIOD FROM 01.04.96 TO 07.05.2002. IN RESPON SE TO THE NOTICE THE ASSESSEE CHALLENGED THAT THERE WAS NO UNDISCLOSED I NCOME AND REQUESTED THE DEPARTMENT TO PROVIDE THE COPIES OF BOOKS OF ACCOUN TS, OTHER DOCUMENTS AND DETAILED INFORMATION ON THE BASIS OF WHICH NOTICE U NDER SECTION 158BD OF THE ACT HAS BEEN ISSUED. ACCORDINGLY THE AO COMMUNICATE D THE REASONS FOR INITIATING PROCEEDINGS U/S.158BD OF THE ACT TO THE ASSESSEE VIDE LETTER NO. ACIT/CC- XXIV/158BD/2006-07I46 DATED 04.05.2006 WHI CH IS REPRODUCED BELOW. 1. A SEARCH & SEIZURE OPERATION WAS CONDUCTED IN T HE UIC GROUP OF CASES ON 07/05/02. IN COURSE OF SEARCH IN THE CORPORATE OFFI CE OF UIC GROUP, HUGE SHARE SCRIPTS ALLOTTED IN YOUR NAME WAS FOUND AND SEIZED. IN THE COURSE OF POST SEARCH INQUIRY LAUNCHED IN CONNECTION WITH ASCERTAI NING THE SOURCE OF THE SHARE CAPITAL IT WAS GATHERED THAT A PART OF THE FU ND HAD COME FROM 4 (FOUR) BANK ACCOUNTS I.E. A/ C. NO. 4886, 4914, 4933 & 493 4 MAINTAINED WITH FEDERAL BANK OF INDIA, BURRA BAZAR BRANCH, KOLKATA AND STAN DING IN THE NAME OF SHRI RAIENDRA KUMAR SURANA, SHRI SUNIL KR. JAIN, SURREN DRA KR. HIRWAWAT AND SHRI SHANKARLAL GODH RESPECTIVELY. 2. ON FURTHER INQUIRY IT WAS REVEALED THAT THE AFORESA ID FOUR PERSONS DEPOSITED SUBSTANTIAL CASH IN THEIR RESPECTIVE BANK ACCOUNTS AND THESE FOUR PERSONS WERE NOT TRACEABLE. SUMMONS U/ S. 131 OF THE I T. ACT, 1961 COULD NOT BE SERVED IN THEIR GIVEN ADDRESSES. IT ESTABLISHES TH AT FICTITIOUS BANK ACCOUNTS WERE OPENED IN THE NAME OF THOSE FOUR PERSONS. 3. SINCE HUGE CASH FROM. THESE FOUR ACCOUNTS HAD TRAV ELED TO YOUR COMPANY WHICH WAS ULTIMATELY USED TO PURCHASE THE SHARES OF THE UIC; GROUP (WHICH IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 5 WERE SEIZED) AND IDENTITY, GENUINENESS AS WELL AS CREDITWORTHINESS OF THESE TRANSACTIONS REMAINED DOUBTFUL, I HAD REASONS TO BE LIEVE THAT DISCLOSED FUND OF YOUR COMPANY HAD TRAVELED TO THE UIC GROUP. ACC ORDINGLY, PROCEEDINGS U/S. 158BD WERE INITIATED'. BESIDES THE ABOVE THE AO ALSO OBSERVED THAT ON THE DAY OF THE SEARCH & SEIZURE OPERATION CONDUCTED U/S 132 ON 07/05/02 AT THE OFFICE PREMISES OF M/S UIC WIRES LTD., 227 AJC BOSE ROAD, ANANDLOK (1ST FL OOR), KOLKATA, 2 LACS SHARE CERTIFICATES BEARING DISTINCTIVE NUMBERS 490 301 TO 690300 ALLOTTED TO ASSESSEE COMPANY ON 12/08/2000 WITH A FACE VALUE OF RS.10/- AMOUNTING TO A TOTAL VALUE OF RS. 20 LACS, WERE FOUND AND SEIZED F ROM ITS OFFICE PREMISES. THE UIC WIRES LTD. FAILED TO EXPLAIN WHY THE SHARES SOL D TO THE ASSESSEE IN THE YEAR 2000 WERE STILL LYING AT THE OFFICE PREMISES. THIS INVOKED THE AO THAT UIC GROUP IN CONNIVANCE WITH THE ASSESSEE WAS CHANNELIN G UNACCOUNTED CASH IN THE FORM OF BOGUS PURCHASE/SALE OF SHARES. IT WAS A LSO OBSERVED THAT THE AFORESAID 4 PERSONS FROM THEIR BANK ACCOUNTS HAVE T RANSFERRED TO THE ASSESSEE BANK ACCOUNT AFTER DEPOSITING CASH AMOUNT IN THEIR RESPECTIVE ACCOUNT JUST PRIOR TO ONE OR TWO DAY BEFORE TRANSFE R. 2.2 AS THE AFORESAID FOUR PERSONS WERE NOT TRACEABL E, SO THE GENUINENESS OF THE TRANSACTIONS REMAINED DOUBTFUL. ACCORDINGLY THE AO ISSUED NOTICE TO THE ASSESSEE TO JUSTIFY THE SOURCE OF THE ABOVE CASH IN THE ACCOUNT OF ABOVE SAID FOUR PERSONS. IN COMPLIANCE TO NOTICE THE ASSESSEE SUBMITTED THAT THE INVESTMENT BY THE COMPANY IN UIC GROUP WAS MADE IN THE YEAR 1999 TO 2000 AND THE SAME WAS SOLD TO THE AFORESAID PARTIES IN T HE YEAR 1999 TO 2001 WHICH WAS DULY RECORDED IN THE BOOKS OF ACCOUNT. AS SUCH THERE IS NO UNDISCLOSED INCOME AND ASSESSEE REQUESTED TO DROP THE PROCEEDIN GS UNDER SECTION 158BD OF THE ACT. HOWEVER THE AO REQUESTED THE ASSE SSEE TO PROVIDE THE FOLLOWING DETAILS : 1. NAME OF COMPANIES OF WHICH SHARES WERE PURCHASED . 2. NO. OF SHARES PURCHASED 3. RATE AT WHICH SHARES WERE SOLD. IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 6 4. TOTAL CONSIDERATION. 5. ANNUAL REPORT OF THE COMPANY 6. COPY OF BANK A/C NO. 5274 MAINTAINED IN FEDERAL BANK, BURRABAZAR BRANCH FOR THE RELEVANT PERIOD. 7. INVESTMENT MADE IN UIC GROUPS EITHER DIRECTLY OR THROUGH RAJESH JAJODIA GROUP COMPANIES. 8. NATURE OF TRANSACTIONS WITH DATE, PARTY NAMES AN D AMOUNT SPECIFICALLY TO BE MENTIONED. THE AO ALSO ISSUED NOTICE U/S 131 OF THE ACT FOR TH E PERSONAL APPEARANCE OF THE DIRECTOR. HOWEVER THE ABOVE REQUIRED DETAILS W ERE NOT FURNISHED BUT THE DIRECTOR OF THE COMPANY MR. SANDIP KUMAR SIGNHEE AP PEARED ON DATED 14/11/2006 AND HIS STATEMENT WAS RECORDED UNDER SEC TION 131 OF THE ACT WHICH IS REPRODUCED BELOW : 5. NAME THE PERSONS WHO HAVE INVESTED IN SHARES OF THE COMPANIES OF WHICH YOU ARE DIRECTOR? DID THESE FOUR PERSONS NAMELY, SH ANKAR LAL GODH, SURENDRA KR. HIRAUIAT, SUNIL KR. JAM AND RAJENDRA K R. SURANA INVEST IN YOUR COMPANY? A. VARIOUS CORPORATES AND INDIVIDUALS ETC HAVE INVE STED IN OUR COMPANY. HOWEVER, WE HAVE SOLD OUR INVESTMENTS TO THESE FOUR PERSONS AND RECEIVED MONEY AGAINST SALE OF SHARES WHICH ARE ACCOUNTED FO R M OUR BOOKS OF A/ CS. MONEY RECEIVED FROM THESE FOUR PERSONS HAVE BEEN IN VESTED IN BUYING THE SHARES OF RAJESH JAJODIA GROUP COMPANIES AND THE U LC GROUP COMPANIES. 6. NAME THE COMPANIES WHERE YOUR COMPANIES HAVE MAD E INVESTMENT? A. WE HAVE MADE INVESTMENT IN VARIOUS COMPANIES INC LUDING RAJESH. JAJODIA (NOS. 1-7) AND THE UIC GROUP (NOS. B-11). 1. TARGET MERCHANDISE (P) LTD. 2. SIGMA DEALC OM. (P) LTD. 3. SUNSHINE CONSULTANCY 4. NEELQIRI C OMMERCIAL (P) LTD. 5. ORBITAL SUPPLIERS (P) LTD. 6. SAGAR T RACKON (P) LTD. 7. NIKHAR MERCHANDISE (P) LTD. 8. UIC WIRES L TD 9. UIC HOLDINGS (P) LTD. 10. UIC INDU STRIES LTD. 11. ULC FINANCE (P) LTD. IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 7 7. WHEN WERE THESE INVESTMENTS MADE AND HAVE YOU RE CEIVED SHARE CERTIFICATES FROM THESE COMPANIES? A. WE HAVE MADE THESE INVESTMENTS IN THE FIN. YEAR 1999-00 & 2000-2001 AND WE HAVE NOT YET RECEIVED ANY SHARE CERTIFICATES . 8. WHAT WAS YOUR ROLE IN INVESTMENT MADE IN THE COM PANIES OWNED / CONTROLLED BY MR. RAJESH JAJODIA AND MR. RAJIV JAJO DIA? A. OUR ROLE WAS THAT OF AN INVESTOR. 12. IS IT TRUE THAT MONEY RECEIVED AS INVESTMENT IN YOUR COMPANIES FROM THE AFORESAID FOUR PERSONS WAS INVESTED PARTLY IN THE C OMPANIES CONTROLLED AND MANAGED BY RAJESH JAJODIA AND PARTLY AS DIRECT INVE STMENT IN THE UIC GROUP OF COMPANIES? A. YES, IT WAS INVESTED PARTLY IN THE COMPANIES CON TROLLED AND MANAGED BY RAJESH JAJODIA AND PARTLY AS DIRECT INVESTMENT IN T HE UIC GROUP OF COMPANIES. 13. DID THE COMPANIES MANAGED AND CONTROLLED BY YOU ALSO INVEST IN THE UIC GROUP DIRECTLY? YES, CERTAIN INVESTMENT WERE MADE DIRECTLY WITH THE UIC GROUP. DEPOSITION OF THE AFORESAID FOUR PERSONS SHRI RAJEN DRA KUMAR SURANA, SHRI SUNIL KR. JAIN, SURENDRA KR. HIRAWAT AND SHRI SHANK ARLAL GODH HOLDING THE FOUR BANK ACCOUNTS WERE ALSO TAKEN AND THEY WERE PRODUCE D BY THE DIRECTOR, MR. SANDEEP KR. SINGHI. DEPOSITION RECORDED OF THE AFOR ESAID PERSONS BY THE D.D.I.T.(LNV.) ARE REPRODUCED BELOW, 2) WHAT ARE YOUR SOURCE OF INCOME? SURENDER KR. HIRAWAT:- MY SOURCE OF INCOME IS DOING SMALL JOB WORKS AND SHARE DEALINGS. MY OFFICE WAS AT 29A, RABINDAR SAR ANI, 4TH FLOOR ROOM NI. 10 AND SHIFTED TO 91, N.S. ROAD, KOLKAIA-1, RAJENDRA KR.SURANA;- MY SOURCE OF INCOME ARE DEALIN G IN SHARES AND COMMISSION ON ARRANGING FINANCE. MY SOURCE OF INCOM E IS NOT ESTABLISHED SHANKAR LAL GODH :- MY SOURCE OF INCOME IS DEALING IN SHARES AND SECURITIES. SUNIL KR. JOIN:- MY SOURCE OF INCOME IS DEALING IN FINANCE SECURITY FROM MY OFFICE AT 91, N.S. ROAD, 3RD FLOOR, KOLKATA-1 3) DETAILS OF BANK ACOUNT MAINTAINED BY YOU? IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 8 SURENDER KR. HIRAWAT:- I HAVE S.B. A/C NO. 4933 WIT H FEDERAL BANK OF INDIA, BURRA BAZAR, KOLKATA. RAJENDRA KR.SURANA :- I HAVE S.B. A/C NO. 4886 WITH FEDERAL BANK OF INDIA; BURRA BAZAR, KOLKATA. SHANKAR LAL GODH :- I HAVE S.B. A/C. NO. 4934 WITH FEDERAL BANK OF INDIA, BURRA BAZAR, KOLKATA. SUNIL KR. JAIN:- I HAVE S. B. A/C. NO. 4914 WITH FE DERAL BANK OF INDIA, BURRA BAZAR, KOLKATA. 4) SOURCES OF DEPOSITS IN BANK ACCOUNTS? SAME ANSWER FOR ALL:- SOURCES OF DEPOSITS IN MY S.B . A/C. NO. AT FEDERAL BANK, BURRA BAZAR BRANCH IS THE CASH RECEIVED FROM VARIOUS PERSONS VIZ. MOHAN LAL AGARWAL AND MAHENDAR JAJODIA THROUGH MR. SANDIP SINGHI WITH A DIRECTION TO ISSUE CHEQUES IN FAVOUR OF COMPANIES M ANAGED BY SANDIP AND RAJESH: 1 AM A PERSON HAVING VERY LOW INCOME. 5) HOW CAN YOU JUSTIFY THE SOURCE AS GIVEN IN REPLY TO Q. NO. 4 ? SAME, ANSWER FOR ALL:- I DO NOT HAVE ANY EVIDENCE T O PROVE THAT THE CASH AMOUNT DEPOSITED IN MY ABOVE BANK ACCOUNT HAS BEEN RECEIVED FROM THEM HOWEVER IT CAN BE SEEN THAT CHEQUES FAVOURING SANDI P OR RAJESH COMPANIES HAVE BEEN ISSUED AND DEBITED ON THE SAME DATES ON W HICH CASH DEPOSITED. I HAVE NOT EVEN FILLED CASH DEPOSIT SLIPS AND CHEQUES , THESE WERE PREPARED BY OTHER PERSONS AND BROUGHT TO ME FOR MY SIGNATURE. 7) WHY CASH DEPOSITS IN YOUR ACCOUNT SHOULD NOT BE TREATED AS YOUR MONEY? SAME ANSWER FOR ALL :- THIS IS NOT MY MONEY AND I A M SPEAKING THE TRUTH. IT C.AN BE ASSESSED BY MY FINANCIAL STATUS. 8) WHY CASH DEPOSITS SHOULD NOT BE TREATED AS UNEXP LAINED AND APPROPRIATE ACTION IS TAKEN UNDER THE I T. ACT, 1961 TO ASSESS THE ESCAPED INCOME? SAME ANSWER FOR ALL :- AS STATED EARLIER THIS IS NO T MY MONEY AND IT IS TRUE'. HOWEVER AFTER DEPOSITION, THE AFORESAID FOUR PERSON S WERE NOT TRACEABLE IN SPITE OF THE SUMMONS ISSUED U/S 131 OF THE ACT. THE AO AFTER CONSIDERING THE ALL THE FACTS OF THE CASE HELD THAT THE PURPOSE OF THE SALE AND PURCHASE OF SHARES WAS TO CONVERT THE UNACCOUNTED MONEY OF THE UIC GROUP IN ACCOUNTING FORM AND FOR THIS PURPOSE THE SERVICES OF MR. SANDI P KR. SINGHEE WERE AVAILED. ACCORDINGLY THE AMOUNT OF RS.14.75 LAKHS RECEIVED B Y THE ASSESSEE COMPANY FOR THE SALE OF THE SHARES OF UIC GROUP TO THE AFOR ESAID FOUR PERSONS WAS IN ACTUALLY THE MONEY OF THE UIC GROUP. THE ASSESSEE W AS JUST ACTING AS A IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 9 CONDUIT FOR CHANNELIZING THE MONEY OF UIC AND FOR W HICH IT MUST BE GETTING SOME FORM OF COMMISSION. THEREFORE, THE AMOUNTS IN QUESTION SHOULD BE RATHER TAXED ON PROTECTIVE BASIS IN THE HANDS OF TH E ASSESSEE COMPANY AND ON SUBSTANTIVE BASIS IN THE HANDS OF THE UIC GROUP. HE NCE, THIS AMOUNT IS TAXED ON A PROTECTIVE BASIS IN THE HANDS OF THE ASSESSEE COMPANY. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD.CIT (A) WHERE IT WAS SUBMITTED THAT AS UNDER : THE INVESTMENTS OF THE ASSESSEE WAS SOLD TO THE TO THE ABOVE-MENTIONED FOUR PERSONS FOR SALE CONSIDERATION OF RS.14.75 LAKHS WH ICH WAS DULY RECEIVED BY THE ASSESSEE THROUGH ACCOUNT PAYEE CHEQUES. THE SAL E TRANSACTION WAS DULY RECORDED IN THE BOOKS OF ACCOUNTS AND INCOME TAX RE TURN WAS FILED AFTER INCORPORATING THE ABOVE DETAILS. ON THE DATE OF SEA RCH THE SHARE CERTIFICATES WERE NOT THE PROPERTY OF THE ASSESSEE AND THE RIGHT OF THE ASSESSEE WAS DULY RELINQUISHED THEREON BY WAY OF SALE MUCH BEFORE THE DATE OF SEARCH. ACCORDINGLY, THE ASSESSEE CHALLENGED THE VALIDITY O F THE PROCEEDINGS INITIATED U/S158BD OF THE ACT ON THE GROUND THAT NO INCRIMINA TING MATERIAL WAS FOUND BY THE ASSESSEE DURING SEARCH AGAINST THE ASSESSEE. TH E ASSESSEE PAID TAX ON CAPITAL GAIN ON THE SALE OF INVESTMENT IN THE SHARE S OF UIC GROUP OF COMPANIES. THE A.O. HAS PUT RELIANCE ON THE STATEME NT GIVEN BY THE FOUR PERSONS BUT THESE STATEMENTS HAVE NEVER BEEN MADE A VAILABLE TO THE ASSESSEE FOR CROSS EXAMINATION. IT IS SUBMITTED THA T IN ABSENCE OF SUCH CROSS EXAMINATION BY THE ASSESSEE WHAT SIGNIFICANCE CAN B E ATTRIBUTED TO THE SAME. 5. SIMILARLY THE PROVISIONS OF THE SECTION 68 OF TH E ACT CANNOT BE APPLIED IN THE INSTANT CASE AS IT APPLIES WHERE ANY SUM IS FO UND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND T HE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF THE AO, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 10 BUT IN THE INSTANT CASE, IT IS AN ACCEPTED POSITION THAT THE ABOVE AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE COMPANY THROUGH ACCOU NT PAYEE CHEQUE AGAINST SALE OF INVESTMENT AND ALL THE DISCLOSURE W ERE MADE IN THE INCOME TAX RETURN. 5.1 AS PER THE PROVISIONS OF SECTION 158BD OF THE A CT THE MATERIALS FOUND DURING SEARCH SHOULD HAVE BEEN HANDED OVER TO THE A O HAVING JURISDICTION OVER SUCH OTHER PERSON TO INITIATE THE ACTION IN TE RMS OF THE AFORESAID SECTION. BUT IN THE INSTANT CASE NO SUCH PROCEDURE HAS BEEN FOLLOWED BY THE AUTHORITIES. THE SHARE CERTIFICATES FOUND DURING TH E SEARCH WERE NOT HANDED OVER TO THE AO HAVING JURISDICTION OVER THE ASSESSE E. HOWEVER THE LD. CIT(A) AFTER CONSIDERING ALL THE FA CTS OF THE CASE DISREGARDED THE PLEA OF THE ASSESSEE BY OBSERVING AS UNDER : FROM THE FACTS DISCUSSED ABOVE, IT IS CLEARLY ESTA BLISHED THAT THE APPELLANT HAS FAILED TO ESTABLISH THE CREDITWORTHINESS OF THE CREDITORS IN RESPECT OF THE AMOUNT OF RS.14,75,00/- FOUND CREDITED IN ITS BOOKS OF ACCOUNT DURING THE BLOCK-PERIOD UNDER APPEAL AND HA ALSO FAILED TO PRO VE THE GENUINENESS OF THE IMPUGNED TRANSACTIONS. THEREFORE, IT IS HELD THAT T HE AO HAD RIGHTLY TREATED THE AMOUNT OF RS.14,75,000/- TO BE APPELLANTS UNEXPLAI NED INCOME OF THE BLOCK- ERIOD UNDER APPEAL. HENCE, THE ADDITION OF THAT AMO UNT IS CONFIRMED. AS REGARDS THE APPELLANTS OBJECTION THAT IT WAS NO T PROVIDED OPPORTUNITY BY THE AO TO CROSS EXAMINE THE WITNESSES ON DEPOSITION OF WHOM THE AO HAD RELIED, IT IS OBSERVED THAT INITIALLY ALSO THOSE FO UR PERSONS WERE PRODUCED BEFORE THE ADIT (INVESTIGATION) ONLY BY SRI SANDEEE P SINGHI, ONE OF THE DIRECTORS OF THE APPELLANT-COMPANY. DURING THE ASSE SSMENT PROCEEDINGS THE AO TRIED TO TRACE THOSE PERSONS AND SERVE SUMMONS U /S131 OF THE ACT TO THEM BUT THOSE PERSONS WERE NOT TRACEABLE, THEREFORE, TH E AO REQUIRED THE APPELLANT TO PRODUCE THOSE FOUR PERSONS BEFORE HIM BUT THE APPELLANT FAILED TO DO SO. UNDER THE CIRCUMSTANCES IT WAS NOT POSSIBLE FOR THE AO TO PROVIDE CROSS-EXAMINATION OF THOSE PERSONS TO THE APPELLANT . FURTHER THE AO HAS REPORTED IN THE REMAND REPORT THAT HE HAD SUPPLIED COPIES OF THE DEPOSITIONS OF THOSE PERSONS TO THE APPELLANT. HENCE, THIS OBJE CTION OF THE APPELLANT IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) ASSESSEE CAME IN SECOND APPEAL BEFORE US. 6. BEFORE US LD. AR HAS TAKEN THE STAND THAT THE AO HAS NOT RECORDED HIS SATISFACTION AS REQUIRED UNDER SECTION 158BD OF THE ACT. HE FURTHER SUBMITTED IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 11 THAT IN THE INSTANT CASE THERE IS NO UNDISCLOSED IN COME OF THE ASSESSEE. ALL THE TRANSACTION FOR THE SALE OF SHARES TO THE AFORESAID 4 PERSONS WERE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND OFFERED TO TAX. THE PROCEEDING UNDER SECTION 158BD DOESNT APPLY AS THE ASSESSEE H AS NO UNDISCLOSED INCOME. THE AO HAS MADE THE ADDITION ON THE BASIS O F THE STATEMENTS RECORDED UNDER SECTION 132 OF THE ACT OF THE AFORES AID 4 PERSONS WERE NOT MADE AVAILABLE FOR THE PURPOSE OF CROSS EXAMINATION . ON THE OTHER HAND, LD DR VEHEMENTLY SUPPORTED THE ORDERS OF LOWER AUTHORI TIES. 7. FROM THE AFORESAID DISCUSSION WE FIND THAT THE A O HAS INITIATED AND COMPLETED THE ASSESSMENT PROCEEDINGS U/S 158BD / 14 4 OF THE ACT ON THE BASIS OF DOCUMENTS FOUND AT THE TIME OF SEARCH FROM THE PLACE OF UIC GROUP OF COMPANIES WHERE THE SEARCH WAS CONDUCTED. HOWEVER T HE ASSESSEE CLAIMED THAT THERE WAS NO UNDISCLOSED INCOME OF THE ASSESSE E AND THE DOCUMENTS WHICH WERE FOUND AT THE TIME OF SEARCH WERE DULY DI SCLOSED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE INCOME THEREON WAS OFFERED TO TAX. THE ASSESSEE BEFORE US HAS CHALLENGED THE VALIDITY OF T HE PROCEEDINGS UNDER SECTION 158BD OF THE ACT ON THE GROUND THAT THE IN THE INSTANT CASE THE SATISFACTION WAS TO BE RECORDED BY THE AO OF THE UI C GROUP WHERE THE SEARCH WAS CONDUCTED BUT IN THE CASE IN HAND THE SATISFACT ION HAS BEEN RECORDED BY THE AO HAVING JURISDICTION OVER THE ASSESSEE. IN OU R CONSIDERED VIEW, WE FIND LOT OF FORCE IN THE ARGUMENT MADE BY LD. AR BEFORE US WITH REGARD TO THE SATISFACTION RECORDED AS PER THE PROVISIONS OF SECT ION 158BD OF THE ACT. IN THIS CONNECTION, WE RELY IN THE DECISION OF HONBLE GUJR AT HIGH COURT IN THE CASE OF CIT VS CHAMPAKBHAI MOHANBHAI PATEL [2015] 370 ITR 700 (GUJ) WHERE IT WAS HELD THAT:- 5. ON HAVING HEARD THE LEARNED COUNSEL AND ON EXAM INATION OF THE MATERIAL ON RECORD, WE COULD NOTICE THAT THE ASSESSEE HAD RA ISED ESSENTIALLY THE ISSUE OF ASSESSMENT UNDER SECTION 158BO READ WITH SECTION 158BC FOR THE BLOCK PERIOD FROM APRIL 1, 1995, TO DECEMBER 19 2001, AS BAD IN LAW SINCE NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER HAVING JURISDICTION OVER THE NON-SEARCHED PERSON. IT IS TO BE NOTED THAT IN THE CASE OF LALITKUMAR PATEL (SUPRA), AS ALSO IN THE CASE OF THE PRESENT ASSESSE E-RESPONDENT, COMMON REASONS WERE RECORDED BY THE ASSESSING OFFICER FOR ISSUANCE OF NOTICE UNDER IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 12 SECTION 158BD OF THE ACT. IN THE CASE OF LALITKUMAR PATEL, WHEN THE MATTER HAD REACHED THIS COURT CHALLENGING THE ORDER OF THE TRIBUNAL, THE SAME WAS SUSTAINED BY THIS COURT, EXTENSIVELY DEALING WITH T HE VARIOUS PROVISIONS AS ALSO TAKING INTO CONSIDERATION THE CASE LAWS ON THE SUBJ ECT PARTICULARLY RELYING ON CASE OF MANISH MAHESHWARI V. ASST.CIT [2007] 289 IT R 341 (SC) IT WAS HELD THAT FOR TAKING RECOURSE TO THE BLOCK ASSESSME NT UNDER SECTION 158BC IN RELATION TO THE PERSON NOT SEARCHED, WHENEVER SEARC H HAS BEEN CONDUCTED UNDER SECTION 132 OR THE DOCUMENTS HAVE BEEN REQUIS ITIONED UNDER SECTION 132A, THE ASSESSING OFFICER OF THE SEARCHED PERSON NEEDS TO RECORD IS SATISFACTION THAT UNDISCLOSED INCOME BELONGS TO THE PERSON OTHER THAN THE PERSON WITH RESPECT TO WHOM SEARCH WAS CARRIED OUT UNDER SECTION 132 OF THE ACT. HE IS ALSO REQUIRED TO HAND AS PER THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR ASSETS SEIZED TO THE ASSESSING OFFICER HAVING JURISDICTION OVER SUCH NON-SEARCHED PERSON AND, THEREAFTER, THE ASSES SING OFFICER WHO HAS JURISDICTION WOULD PROCEED UNDER SECTION 1588C, AGA INST THE PERSON WHO HAS NOT BEEN SEARCHED. FURTHER, WE ARE ALSO RELYING IN THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI V. ACIT AND ANOTHER INDORE CONSTR UCTION P. LTD. V. CIT (2007) 289 ITR 341 (SC) WHERE THE HONBLE COURT HA S HELD THAT:- THE CONDITION PRECEDENT FOR INVOKING A BLOCK ASSES SMENT IS THAT A SEARCH HAS BEEN CONDUCTED UNDER SECTION 132, OR DOCUMENTS OR A SSETS HAVE BEEN REQUISITIONED UNDER SECTION 132A. THE SAID PROVISIO N WOULD APPLY IN THE CASE OF ANY PERSON IN RESPECT OF WHOM SEARCH HAS BEEN CA RRIED OUT UNDER SECTION 132A OR DOCUMENTS OR ASSETS HAVE BEEN REQUISITIONED UNDER SECTION 132A. SECTION 158BD, HOWEVER, PROVIDES FOR TAKING RECOURS E TO A BLOCK ASSESSMENT IN TERMS OF SECTION 158BC, IN RESPECT OF ANY OTHER PERSON, THE CONDITIONS PRECEDENT WHEREFOR ARE; (I) SATISFACTION MUST BE RE CORDED BY THE ASSESSING OFFICER THAT ANY UNDISCLOSED INCOME BELONGS TO ANY PERSON, OTHER THAN THE PERSON WITH RESPECT TO WHOM SEARCH WAS MADE UNDER S ECTION 132 OF THE ACT; (II) THE BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR ASS ETS SEIZED OR REQUISITIONED HAD BEEN HANDED OVER TO THE ASSESSING OFFICER HAVIN G JURISDICTION OVER SUCH OTHER PERSON; AND (III) THE ASSESSING OFFICER HAS P ROCEED UNDER SECTION 158BC AGAINST SUCH OTHER PERSON. THE CONDITIONS PRECEDENT FOR INVOKING THE PROVISION S OF SECTION 158BD, THUS, ARE REQUIRED TO BE SATISFIED BEFORE THE PROVISIONS OF THE SAID CHAPTER ARE APPLIED IN RELATION TO ANY PERSON OTHER THAN THE PE RSON WHOSE PREMISES HAD BEEN SEARCHED OR WHOSE DOCUMENTS AND OTHER ASSETS H AD BEEN REQUISITIONED UNDER SECTION132A OF THE ACT. FORM THE ABOVE, IT IS CLEAR THAT THE AO OF UIC GROU P WAS TO RECORD THE SATISFACTION BEFORE INITIATING THE PROCEEDING UNDER SECTION 115BD OF THE ACT. BUT IN THE INSTANT CASE THE AO HAVING THE JURISDICT ION OVER THE ASSESSEE HAS RECORDED THE SATISFACTION WHICH IS INCORRECT AS PER LAW. TAKING THE CONSISTENT IT(SSA NO.71/KOL/2013 B.P. 1/4/96 TO 07/05/02 M/S KATPADI TRADING (P) LTD. V. ACIT CC-XXIV, K OL. PAGE 13 VIEWS IN THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI (SUPRA) AND THE JUDGMENT OF HONBLE GUJARAT HON'BL E HIGH COURT IN THE CASE OF CHAMPAKBHAI MOHANBHAI PATEL (SUPRA) WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND THIS GROUND OF ASSESSEES APP EAL IS ALLOWED. 8. AS WE HAVE ALREADY ALLOWED ASSESSEES MAIN ISSUE U/S. 158BD OF THE ACT IN FAVOUR OF ASSESSEE HENCE, REMAINING GROUNDS OF ASSESSEE DO NOT REQUIRE ANY ADJUDICATION. 9. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 27 /04/2016 SD/- SD/- (S.S.VISHWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) *DKP ! - 27/04/2016 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S KATPADI TRADING (P)LTD.,133,CANNING STREET,3 RD FLOOR, KOLKATA -01 2. /RESPONDENT-ACIT,CC-XXIV, 110, SHANTIPALLY, E.M.BYE PASS, KOLKATA-107 3. # $% ' / CONCERNED CIT KOLKATA 4. ' - / CIT (A) KOLKATA 5. ()* ++$% , $% , / DR, ITAT, KOLKATA 6. *,- / GUARD FILE. BY ORDER/ , /TRUE COPY/ / $% ,