Ashok Chawla & Ors v. Director Of Income Tax & Ors

+ W.P.(C) 4299/2007. C.M. APPL.8052/2007, 4030/2008, 3249/2009, 11752/2010, 2091/2014, 356-57/2017 & 499/2017 ASHOK CHAWLA & ORS. ..... Appellants ..... Respondents versus DIRECTOR OF INCOME TAX & ORS. + W.P.(C) 7962/2009, C.M. APPL.4413/2009 ASHOK CHAWLA versus COMMISSIONER OF INCOME TAX ..... Appellant ..... Respondent + W.P.(C) 3517/2011ASHOK CHAWLA versus ..... Appellant COMMISSIONER OF INCOME TAX ..... Respondent Through : Sh. Roopchand, Advocate, for Sh. Ashok Chawla. Sh. Ankit Swarup and Ms. Tanya Swarup, Advocates, for applicants, in C.M. Appl.356-57/2017. Sh. Ashok. K. Manchanda, Sr. Standing Counsel, for Income Tax Department, in Item Nos. 1 to 10. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT % 1. This batch of appeals under Section 260-A of the Income Tax Act (“the Act” hereafter) and writ petitions arise from scrutiny assessments made pursuant to a search and seizure operations conducted in 1995. The assessees are aggrieved in one batch of matters; the Revenue claims to be aggrieved, in two appeals. The essential facts are narrated below, after which individual grounds urged in the various appeals and writ petitions would be dealt with. 2. The main assessee/appellant, Ashok Chawla (hereafter called by his name) had served in the Indian Army from which he retired in 1984 and went on to found M/s. Centaur Helicopter Services (P) Ltd (hereafter “Centaur”) with him and his wife as its directors. Centaur was an authorized dealer of M/s. Schweizer Aircraft Corporation USA (“Schweizer” hereafter) for purchase and sale of its helicopters in India. Ashok Chawla was also consultant to M/s. Capitex Impex (P) Ltd. for manufacture of leather goods. The Revenue had claimed or rather suspected that Ashok Chawla used to earn income from defense deals and contracts, which he did not account for in his income tax returns and he instead claimed to be an army pensioner and salary income earner from Centaur. On 31[st] August, 1995, a search and seizure operation was carried out by the Revenue in his premises as well as those of his companies, concerns and individuals associated with him. This resulted in seizure of several documents, cash and other materials. 3. Ashok Chawla and others who received notices, pursuant to the search, filed block returns for the period AY 1985-1995. Ashok Chawla declared undisclosed income to the extent of `39,86,916/-. In the assessment order by the Assessing Officer (AO), the income assessed for the block period that was brought to tax was `17,77,29,193/-. Ashok Chawla‟s appeals to the Income Tax Appellate Tribunal (ITAT) failed; it dismissed his appeals by the impugned order, dated 26[th] December 2006. That impugned order is the subject matter of challenge in ITA 495/2007. Initially, the validity of search proceedings had been challenged in a writ petition, W.P.(C) 1518/1997, which was disposed of by an order dated 1[st] August, 2001, which expressed the opinion that since the issues concerned were factual, the ITAT ought to consider and return findings on them. The ITAT, in its impugned order, held that it lacked competence to examine the validity or legality of search and seizure. Therefore, Ashok Chawla, in a freshly filed writ petition (W.P.(C) 4299/2007) questions the validity and legality of search and seizure proceedings, on diverse grounds, including that it was motivated by legalmalice, mala fides, tainted inasmuch as it was premised upon the information of a former partner and his ability to bring about pressure, and technical grounds such as improper search in the absence of proper witnesses and lastly, that the assessment order was made by the officer who searched the premises. Ashok Chawla has also challenged the order of the ITAT, declining his application for rectification of its main order in his appeal (in his application MA 57/Del/2007 before the tribunal) by filing W.P.(C) 3517/2011. 4. The additions that were the subject of Ashok Chawla‟s appeals were discussed in relation to Ground Nos. 5 to 16. These were on account of various materials seized during the search and seizure operations listed below: (1) A slip of paper which contained the description of an account (No. 53745) with Discount Bank Trust Co, Switzerland (Discount Bank, for short); (2) Visiting card of Dr. VRS Fricker, Vice President of Discount Bank; (3) Telephone bills containing a record of several calls between Ashok Chawla and Dr. Fricker; (4) A typed telex addressed to Fricker which instructed the latter to transfer US $ 40,000 to an account with National Westminster Bank and for also instructing him to transfer US $ 10,000 to Anuj Chawla, son of Ashok Chawla. The document sought confirmation within an hour. (5) A request for bank guarantee (dated 4[th] October, 1994) made to Discount Bank, in relation to an account number (No. 53745 ZV) clearly stated on the face of the document, which requested for issuance of a guarantee for GBP £100,000 favouring Duncan Lawry Ltd, London securing all accounts and securities held with the bank. The relevant portion of the said letter reads as follows: “In this connection, I/we assume entire responsibility towards you for this co-operation as well as for all consequences of any kind or nature which may arise for you due to the issuance of this guarantee of your surety.” (6) Documents showing that `1,15,72,668/- was paid for by Ashok Chawla, to purchase two Schweizer helicopters. This included a letter dated 31.08.1994 by Rocky G. Peter of Schweizer Corporation, USA addressed to the Director General, Civil Aviation, showing that they had been sold to Centaur. The letter stated that Schweizer had “recently sold two Schweizer 300C/Model 269 C helicopters to Centaur Helicopter Services in Delhi..” and that the helicopters were manufactured under production certificates of a particular type or standard which was acceptable in India. There was another letter, i.e of Micheal D. Oakle of Schweizer who was its treasurer, dated 3[rd]January, 1995 which indicated that the two helicopters were sold to Centaur for a consideration of US $ 196,166.10 pursuant to its purchase order and that at the latter's request, it was being held by the said seller at its (Centaur‟s) risk at its premises; further the letter stated that the title had passed to the said buyer, i.e. Centaur. (7) A letter dated 30.08.1994 from Centaur stating that payment would be made to Schweizer between 5[th] and 9[th] September, 1994. The letter stated that the invoice would have to be changed to that of United India Airways Ltd. The assessee who had written the letter, stated further that: “Also, a provision will have to be made to show that the source of funds for these Helicopters which I am claiming that these Helicopters are being brought on lease and therefore quarterly payments have to be repaid to you through the lease charges till the full payment along with interest of 7% has been made.” (8) Documents showing Ashok Chawla‟s possession of a property at 105, Queens Road, Reading, Berkshire, London also showed renewal of insurance in respect of certain assets in that flat; further a letter by Ashok Chawla‟s wife to HUDA, disclosing that he lived in that flat, were also found and seized. that the invoice would have to be changed to that of United India Airways Ltd. The assessee who had written the letter, stated further that: “Also, a provision will have to be made to show that the source of funds for these Helicopters which I am claiming that these Helicopters are being brought on lease and therefore quarterly payments have to be repaid to you through the lease charges till the full payment along with interest of 7% has been made.” (8) Documents showing Ashok Chawla‟s possession of a property at 105, Queens Road, Reading, Berkshire, London also showed renewal of insurance in respect of certain assets in that flat; further a letter by Ashok Chawla‟s wife to HUDA, disclosing that he lived in that flat, were also found and seized. 5. The assessee/Ashok Chawla's explanation was that the account number with Discount Bank, Switzerland was of M/s. Capitex of which he was only a consultant. The AO and the ITAT rejected this argument by saying that Swiss bank accounts were inherently kept confidential and that a consultant could not be expected to be in possession of details; furthermore, Ashok Chawla's frequent telephonic conversations with the Vice-President of the bank painted another picture. In addition, the bank had been asked to issue a guarantee in relation to that account. Another letter asking for transfer of funds from that account to other accounts, such as that of his son, were found. The assessee had also argued that a search party had planted documents - a plea that was rejected by the Tribunal. The Tribunal held that there was no material or correspondence found or disclosed showing linkage of the account with M/s. Capitex or any documents showing authorisation from M/s. Capitex to issue bank guarantees with respect to two Schweizer helicopters. The assessee had argued that M/s. Capitex had made the payments. The AO and the Tribunal relied upon the documents of Rocky. G. Peter of Schweizer and the Treasurer of Schweizer USA's letter dated 03.01.1995, which confirmed that helicopters were sold to the assessee. The assessee's letter asking for change of invoice favoring United Airways India Ltd. was also relied upon. The assessee's explanation was that he had an office in Moscow maintained by Allan Saltmer, Director of M/s. Capitex, and his business associate and that he was visiting Moscow at the behest of the principal, i.e. M/s. Capitex and Allan Saltmer for which he would be given money was rejected. The Tribunal said, "in case Mr. Saltmer had only occasionally given money for payment on his behalf, how a detailed and elaborate account of all expenses were found from the premises of the assessee. No logical explanation is coming forth. Moreover, no reliable and authenticated evidence has been produced showing that the office had been maintained by Saltmer and that expenses were declared in his account." 6. With respect to the London flat, the assessee argued that the property was the rented office of M/s. Capitex and relied upon a letter. Such material was held to constitute ex-facie evidence to rebut the presumption that the assessee in fact owned the property and had paid substantial amounts towards it. The ITAT concluded that Ashok Chawla's explanation was an attempt to fabricate an explanation for the seized documents. 7. In Ground nos.7 and 8, the assessee had challenged the addition of `53,84,258/- explaining that the source of money was his son's income which he earned when he worked as a flight and ground instructor. The ITAT examined the appeal of Sh. Anuj Chawla, son of Ashok Chawla and held that the additions made to his tax returns were correctly done. The amounts were deleted by the ITAT on protective basis. The next ground, i.e. 7. In Ground nos.7 and 8, the assessee had challenged the addition of `53,84,258/- explaining that the source of money was his son's income which he earned when he worked as a flight and ground instructor. The ITAT examined the appeal of Sh. Anuj Chawla, son of Ashok Chawla and held that the additions made to his tax returns were correctly done. The amounts were deleted by the ITAT on protective basis. The next ground, i.e. No.8 related to an addition of `51,12,392/- in the bank guarantee of M/s. Centaur Impex on 01.11.1994, a transfer from Centaur Helicopters. This was found to be a foreign remittance by the AO, wrongly credited in the account of Centaur. According to Ashok Chawla, the source was an advance received from Centaur Impex by Thrustom Telecom UK for garment export. The addition of this amount was upheld in the case of Centaur Impex. Therefore, the protective assessment in the case of Ashok Chawla was deleted. Likewise, in respect of `40,65,086/- which was a credit in the account of Centaur Impex on 20.02.1995, the explanation given was that the source of deposit was an advance from M/s. Aviv Exports Moscow for export of leather jackets worth US$ 130,000 in terms of the contract dated 30.09.1995. The AO held that the explanation was unsatisfactory and added it to the account of Centaur Impex on substantive basis and to the account of Ashok Chawla on protective basis. This was again like in the case of previous accounts, deleted. 8. After analyzing the documents and materials seized, the findings of the AO and the submissions of the parties, the ITAT rendered specific findings with respect to each heads of income and addition in para 20.1 to 20.7.7. It rendered its decisions with respect to certain miscellaneous items and grounds between para 21.1 to 21.9. The Tribunal concluded (para 7.10 and 20.3) that M/s. Capitex was only a front put up by Ashok Chawla to explain various transactions and could not be given any importance. It upheld the rejection of his explanation with respect to purchase of helicopters on behalf of M/s. Capitex. The ITAT therefore, upheld the findings that Ashok Chawla was bound to explain the source of payment - which he had not given satisfactorily. The discount allowed, i.e. $ 85,364 was held to be unsustainable and was therefore, deleted by following the reasoning that such amount merely reduced the value of the helicopter of which the assessee was the purchaser. Likewise, the claim of reimbursement of `1,37,79,186/- from Rakesh Gupta for which the Ashok Chawla gave an explanation was held to be unsatisfactory. This amount included a sum of `54.78 lakhs on account of payment to the helicopters and `29,51,186 on other counts. Reliance was placed upon payments made by M/s. Capitex - clear from a letter dated 08.03.1995 and MOU dated 05.07.1993 - both of which had been seized. These showed that M/s. Capitex had agreed to pay US $ 1,66,000 to Swidnik. The ITAT therefore held that addition was un-justified only on the basis of statement of Rajesh Gupta. However, the ITAT also returned findings: also returned findings: "20.4 ………On careful consideration, we find that addition has been made not only on the basis of statement of Shri Rakesh Gupta. Details of these expenses had been found from the premises of the assessee. There is no dispute that the seized documents showed payment of Rs.5478000/- for purchase of Sokol Helicopter. The assessee is therefore, required to explain the source of these payments by a reliable evidence. As regards the letters from M/s. Capitex, we have already examined this aspect in paras 7.10 of this order and concluded that capitex is only a front company put up by the assessee to explain various transactions which had been seized. Several blank letter heads of the said company were found from the premises of the assessee. As mentioned in the earlier part of the order, a Swiss bank account number was also found in respect of which the assessee had issued a guarantee letter, which can be done by only an owner but the assessee had procured letters from Capitex claiming that the account belonged to them. The assessee is either the owner of the Capitex or the latter had been put up as a front to explain huge unaccounted money earned through different deals. The letters from Capitex cannot therefore, be accepted as reliable evidence. No credible evidence such as copies of bank account/audited accounts has been produced regarding the source of payment for purchase of Sokol Helicopters by anybody else. The explanation of the assessee regarding source of payment has therefore, been rightly rejected by the AO" 9. The ITAT further upheld the commission at 15% not disclosed by the assessee from the documents seized, on account of supply of Kraz 260 trucks to Ukraine - `24,67,50,000/- and a contract for MI platforms for a consideration of US$ 50,40,000/-. The addition made in these two accounts was `44,21,2500/- and `2,41,92,000/-. The addition made on account of reimbursement of expenses from Rakesh Gupta was `29,51,186/-. 10. On an overall analysis, the ITAT sustained the addition of `7,37,00,000/- as against addition of `14,98,66,417/- made by the AO which was the subject matter of Grounds 5, 6, and 10 to 16. The other substantial amounts brought to tax was ` 4 lakhs seized from the locker of ND Vault, Defence Colony - `2,36,000/- and `25,00,000/-. On these, the findings of ITAT are as follows: On an overall analysis, the ITAT sustained the addition of "21.7 We have perused the records and considered the rival contentions carefully. The explanation of the assessee regarding the cash of Rs.4 lacs found from locker no.1403 is not convincing. It is not understandable as to why the assessee will withdraw money from bank account at different points of time and keep it in cash with his father to be deposited later in the locker. The money found in the locker was also found to be in the same denomination of Rs.500/- and serially numbered. The explanation has, therefore, been rightly rejected by the AO and the addition made on this account is upheld. As regards the cash of Rs.20,000/- found from locker no.6003, the amount being small, the explanation of the assessee in our view has to be accepted. The addition made on this account is accordingly deleted. 21.8 As for the liquor bottles, it is an undisputed fact that large quantity of liquor had been recovered during the course of search. The explanation of the assessee that the same were bought on the visits abroad or gifted by friends abroad and brought to India but his pilot son, is not supported by any evidence and has to be rejected. However, as we have held that the assessee was engaged in the business of defense and other deals at international level on a large scale, the consumption of liquor has to be considered as normal business expenditure in connection with such deals. As we have already determined the income from such deals, no separate addition on account of such expenses is required to be made. The addition made on this account is, therefore, deleted. 21.8 As for the liquor bottles, it is an undisputed fact that large quantity of liquor had been recovered during the course of search. The explanation of the assessee that the same were bought on the visits abroad or gifted by friends abroad and brought to India but his pilot son, is not supported by any evidence and has to be rejected. However, as we have held that the assessee was engaged in the business of defense and other deals at international level on a large scale, the consumption of liquor has to be considered as normal business expenditure in connection with such deals. As we have already determined the income from such deals, no separate addition on account of such expenses is required to be made. The addition made on this account is, therefore, deleted. 21.9 The seized documents have shown that the assessee contributed a sum of Rs.25 lacs in cash towards the setting up of the company - Centaur Impex. The explanation by the assessee is that the contribution has been made through Centaur Helicopters and the method adopted was to have cross holdings of shares worth Rs.25 lacs in two companies and the same money was shown as capital in both the companies. However, this does not explain the source of investment made by the assessee. The claim of the assessee that the peak amount was only Rs.5 lacs, has not been examined by the AO. In our view, this aspect requires fresh examination. We, therefore, consider it appropriate to restore the matter to the file of the AO for passing a fresh order after examining various details given by the assessee and after allowing opportunity of being heard to the assessee." 11. Since these appeals and writ petitions were pending for a long time and had been repeatedly adjourned at the request of one or the other party, and on account of the Court's inability to devote substantial time, questions of law had not been framed. Therefore, with the assistance and consent of the learned counsel, the appeals were taken up. The following questions of law are formulated in ITA 495/2007, W.P.(C) 4299/2007, W.P.(C)7962/2009 and W.P.(C) 3517/2011. (i) Whether there was legal justification for the search and seizure operations; (ii) Did the ITAT fall into error in concluding that there was no infirmity in the framing of the assessment by an officer who was involved in the search and seizure operations? (iii) Whether Ashok Chawla was given sufficient opportunity during the assessment proceedings; (iv) Whether the additions sustained by the ITAT are justified or are unreasonable or perverse. First question: Legality of the search and seizure operations 12. Attacking the validity of the search, Ms. Premlata Bansal, learned senior counsel relied upon the decision of the Allahabad High Court in Shyam Jewellers & Anr. v. Chief Commissioner of Income Tax 1992 (196) ITR 243 which held that there should be sufficient objective material to believe that a person is in possession of money, bullion or jewellery to record satisfaction under Section 132 of the Act, justifying a warrant for search of the premises. Similarly, learned counsel relied upon ITO v. Seth Brothers 1969 (74) ITR 836 (SC) for a similar proposition. The Supreme Court had also observed that the provision cannot be construed as offering arbitrary authority upon the revenue officers. The Commissioner or the Director should have reason to believe consequent to information that statutory conditions for exercise of power to search exist. The reasons should be recorded and should precede the authorisation. If and only if the officer has reason to believe that there are books or accounts otherwise useful for or relevant to proceed under the Act would be justified in authorizing the search and seizure of such material. The court had then stressed that, "since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the tax payer, the power must be exercised strictly in accordance with law and only for the purpose of which the law authorises it to be exercised”. has reason to believe that there are books or accounts otherwise useful for or relevant to proceed under the Act would be justified in authorizing the search and seizure of such material. The court had then stressed that, "since by the exercise of the power a serious invasion is made upon the rights, privacy and freedom of the tax payer, the power must be exercised strictly in accordance with law and only for the purpose of which the law authorises it to be exercised”. 13. Learned senior counsel for the assessee also relied upon the judgment in HL Sibal v. Commissioner of Income Tax 1975 (101) ITR 112 (P&H), to say that information is not something which is part of the existing record but something outside of and new. Furthermore, such information should be relevant for concluding a satisfaction that they would be material, in the course of an assessment. Learned counsel relied upon the observations that if an assessee has been regularly producing his books of accounts before the authorities who is accepting those books and has been maintaining in the proper course, it would be unjustified use of power to issue search warrant for production of those books of accounts unless information is to the effect that he has been keeping some secret books as well. The judgment in Harnet Singh v. UOI 1993 04 ITR 334 (P&H) and CIT v. Davy Ashmore India Ltd. 1982 137 ITR 456 were relied upon. 14. It was furthermore submitted that the post facto justification in the form of findings concluded has been sufficient to justify a search, would be of no avail. Learned senior counsel stressed here that the precondition for exercise of the power is the reasonable plea as to the existence of material and the recording thereof in the official file, as a necessary step towards the issuance of the warrant. Learned senior counsel submitted that in the facts of this case, the entire effort of the Revenue was to justify its unlawful search in the premises of the assessee and his relatives and associates by such post facto justification. It was submitted that search and seizure proceedings were in any event motivated by malice on account of the unlawful pressure that was sought to be put upon Ashok Chawla at the behest of one of his associates who was closely related to an Income Tax Commissioner. Since he did not budge and did not accede to the demands made, the premises were unlawfully searched. In this his previous associate, Sh. Rakesh Gupta appeared to have a prime involvement. 15. It was argued on behalf of the assessee by learned senior counsel that one concern, M/s. Mals Deoghar Airlines Limited was incorporated in India, headquartered in Delhi in 1992 by 7 individuals, four of whom were Indians and three Russians with authorized share capital of `1 crore. The initial share capital issued was only `7000/- in August 1992. The company was later on taken over by Rakesh Gupta; Ms. Sudesh Kapila, wife of KK Kapila, IRS; Sh. Vinod Jain and Sh. Yogesh who were appointed as Directors in various companies in 1993. The company showed its balance sheet with paid up capital of `50,07,000/- and share capital money of `31,00,62,500/-. The assets showed aircraft valued at `31,00,62,500/-. 16. It was argued that Rakesh Gupta approached Ashok Chawla with the balance sheet and induced him to join the Airlines and acquire 50% of its issued paid up share capital. He therefore, invested `22,50,000/- (` 5 lakh shares @ ` 4.5 per share). Ashok Chawla and his wife later joined the Board of Directors in 1994. In 1995 he became aware that the aircraft worth `31 crores shown in the balance sheet never existed and was owned by a Russian company, being Mals Airways and that the share application of `31 crores 16. It was argued that Rakesh Gupta approached Ashok Chawla with the balance sheet and induced him to join the Airlines and acquire 50% of its issued paid up share capital. He therefore, invested `22,50,000/- (` 5 lakh shares @ ` 4.5 per share). Ashok Chawla and his wife later joined the Board of Directors in 1994. In 1995 he became aware that the aircraft worth `31 crores shown in the balance sheet never existed and was owned by a Russian company, being Mals Airways and that the share application of `31 crores shown in the balance sheets were bogus. Ashok Chawla, therefore, submits that he was cheated by being induced to invest `22.5 lakhs in Mals Airways. Yet another company, i.e. United India Airways Ltd. was incorporated in 1993. Sudesh Kapila; Suresh Batra and Rakesh Gupta took over this company from him in 1994. On 07.09.1994, an agreement was entered into between Rakesh Gupta and Ashok Chawla by which `21 lakhs was invested by Ashok Chawla in the company, i.e., United India Airlines Ltd. towards share capital during the period November 1994 to March 1995. The assessee, however, was never consulted. Thus, Ashok Chawla invested `43 lakhs in these two companies. He later became aware that both the companies were non-functional and was induced to make substantial investments in them by Rakesh Gupta. 17. It was submitted that Rakesh Gupta and K.K. Kapila agreed to pay `1.34 crores to Ashok Chawla. This, however, did not materialize and on 06.07.1995, the assessee agreed to pay `25 lakhs to K.K. Kapila and Rakesh Gupta who were to leave the two companies. As the amounts were to be paid by 30.08.1995, Ashok Chawla could not arrange for the payment but instead subjected to write off his premises on 31.08.1995. Relying upon these allegations, it was urged that the search was dented by mala fides and motivating complaints in the form of information engineered by K.K. Kapila at the behest of Rakesh Gupta. 18. It was submitted that the appellant cannot be left remediless and that there has to be proper adjudication of these facts, i.e. the manner in which warrant was issued and reliance on information that preceded it. Though extensive arguments were made on behalf of the assessee, the ITAT declined to return a finding on account of its special bench ruling in Promam Limited v. DCIT 2005 (95) ITD 489. It was submitted that the search in the present case was used as a claw to damage the assessee's business reputation and goodwill and to wreck vengeance and to destroy him. Furthermore, the search itself was dented on account of various irregularities during the process such as planting of evidence in the form of letters, documents, illegalities in the form of absence of independent witnesses, forcible entry into the premises of Ms. Vijaya Rajagopal etc. Learned counsel submitted that despite requests, the assessee had not been permitted and denied access to any inspection of the documents seized. Therefore, they in fact make any meaningful submissions to utterly unjustified inferences and findings based on conjectures, drawn by the Revenue, which formed the basis of AO's decision. 19. Learned counsel submitted that such violation of principles of natural justice vitiates the order and relied upon L.R. Gupta v. UOI 1992 194 ITR 32. Learned senior counsel relied upon the letters dated 22.11.1995, 26.08.1996 and 17.09.1996. 20. In the course of hearing, the Revenue had produced copy of the documents and material as well as file notings which formed the basis for the warrant in a sealed cover, no doubt, a perusal of the impugned order of the Tribunal establishes that it declined to pronounce upon the validity of the search proceedings on account of its previous special bench ruling as well as the judgment of this Court in M.B. Lal v. CIT 279 ITR 298. No fault therefore, can be found with the impugned order. 21. At the same time, this Court has to nevertheless examine independently whether the search proceedings were indeed justified having regard to the entirety of the circumstances. Since elaborate submissions were 20. In the course of hearing, the Revenue had produced copy of the documents and material as well as file notings which formed the basis for the warrant in a sealed cover, no doubt, a perusal of the impugned order of the Tribunal establishes that it declined to pronounce upon the validity of the search proceedings on account of its previous special bench ruling as well as the judgment of this Court in M.B. Lal v. CIT 279 ITR 298. No fault therefore, can be found with the impugned order. 21. At the same time, this Court has to nevertheless examine independently whether the search proceedings were indeed justified having regard to the entirety of the circumstances. Since elaborate submissions were made in this regard, in fact the petitioner had approached this Court earlier by filing W.P.(C)1518/1997, which was subsequently disposed of. The validity of the warrant and the search proceedings is the subject matter of challenge in W.P.(C) 4299/2007. 22. It is sufficient to record that the material, which led the Director of Income Tax to authorise search, was based upon information supplied. These spoke of substantial assets held by the assessee, which was not accounted for as well as receipts, which were not declared. The assessee's principal submissions with respect to reliance upon such material primarily stems from Ashok Chawla's narrative of his being duped by Sh. Rakesh Gupta and Ms. Kapila According to him, the inducements extracted through investments in M/s. Mals Airways and M/s. United India Airways Ltd. were duds and that he sought a return of that money when it was discovered that he was duped. Apparently the two individuals agreed to return the amounts and the sum of `1.34 crore was initially agreed. Later they expressed their inability to do so and a counter offer was made by Ashok Chawla to buy out their shares from the two companies by acquisition and pay them `25 lakhs by 30.8.1995. As far as the narration goes, the argument is plausible. The difficulty, however, for this Court to accepting these submissions is that such contentions is entirely unsubstantiated. To compound the matter, there are internal contradictions as well. If in fact, M/s. Mals did not possess the assets declared, i.e the form of aircraft valued at over `31 crores, Sh. Ashok Chawla was undoubtedly justified in asking for the return of the money. Thus, his argument with respect to the counter offer for `25 lakhs to acquire the shareholding of the two companies begs an explanation. In other words, if the entire corporate entity is a dud and in fact a shell company (as Mas and United India Airways Ltd. were, allegedly according to the assessee Ashok Chawla) in which he had substantial holding, there was no explanation forthcoming as to why after asking for return of that money for exiting from that company, he wished to acquire the entire shareholding of the company. Furthermore, if indeed, the assessee wished to exit from United India Airways Ltd. (of which he was a substantial shareholder) there is no explanation from him as to why he wrote - which he did, a letter to Schweizer Helicopter, requesting that the invoice for the helicopter be made out in the name of the United India Airways. Therefore, this Court is un-persuaded in regard to the arguments that the motivation for the complaint that led to the search were on account of some business falling out or differences between him and his earlier colleagues. As to why in fact the submissions of the assessee that search was at the behest of Ms. Kapila's husband since he was powerfully placed in the Income Tax department at that stage, did not appear to be well founded. In fact Mr. Ashok Chawla was well aware of Ms. Sudhir Kapila was the wife of senior Income Tax official despite which he did not involve himself in the business of two companies where he invested. More importantly, the allegation that Sh. K.K. Kapila brought pressure and used his official position in an unfair manner can no doubt be made; yet it has to be established by credible evidence. In this case, there is no evidence whatsoever - either direct or in the form of letters or material, giving Ms. Sudhir or her husband, or circumstantial evidence. Having regard to these factors, the Court holds that the plea that the search was on account of motivated allegations is without substance. 23. It was argued that Ravi Kumar, one of panchas at 2 Under Hill Road, Civil Lines, New Delhi, was shown as witness at C-517, Defence Colony garage where search was started on 31.08.1995 at 08.10 PM and was concluded on 01.09.1995 in the morning at 4.30 AM. Counsel for the asseessee argued that in his affidavit, Ravi Kumar stated that the search at Civil Lines was started at 08.00 AM and concluded at 09.55 PM on 31.08.1995. The search of Defence Colony was at about 11.00 PM after conclusion of search at Civil Lines which is at a distance of 20 KM approx. Thus the search was already started 03 hours prior to his reaching at Defence Colony. Mr. Ravi Kumar was not aware of the activities which took place between 08.10 PM to 11.00 PM. This wholly improbabilizes the search proceedings. Counsel next submitted that the raiding party had taken ingress by forcing the locked premises of Defence Colony Garage open, when the keys were already available with Ms Vijaya Rajagopal, the assessee‟s manager, who was present at the relevant time at 2, Under Hill Road, Civil Lines, Delhi where the search and seizure operation was being carried out simultaneously. By the time, Ms. Vijaya Rajagopal reached Defence Colony premises, the search party had already bunched-up all the papers and made Vijaya to sign on the dotted lines. These irregularities, said counsel were committed deliberately so as to plant certain documents with impunity without any check and control either by the panchasor by Ashok Chawla‟s representatives. 24. Rule 112(6) of the Income Tax Rules requires the authorized officer to call upon two or more respectable persons to witness the search. The Panchnama drawn at C-517, Defence Colony, shows two witnesses: Mr. Ravi Kumar and Mr. D.S. Mann. Mr. Ravi Kumar reached at the venue after three hrs of commencing the search. Moreover, D.S. Mann was allowed to go to sleep and was called only in the morning when the search was going to be wound-up. It is argued that this renders the search illegal and also prima facie provided opportunities to the search party to plant documents handed over by Shri Rakesh Gupta to ADI Shri D R Chaudhary. 24. Rule 112(6) of the Income Tax Rules requires the authorized officer to call upon two or more respectable persons to witness the search. The Panchnama drawn at C-517, Defence Colony, shows two witnesses: Mr. Ravi Kumar and Mr. D.S. Mann. Mr. Ravi Kumar reached at the venue after three hrs of commencing the search. Moreover, D.S. Mann was allowed to go to sleep and was called only in the morning when the search was going to be wound-up. It is argued that this renders the search illegal and also prima facie provided opportunities to the search party to plant documents handed over by Shri Rakesh Gupta to ADI Shri D R Chaudhary. 25. Counsel stated that it is evident from the panchnama at Defence Colony Garage that the raiding party had not offered themselves for personal search nor was it declined, obviously because no one was present to do so, on behalf of the assessee. This again is a circumstance, suggestive that the raiding party enjoyed complete freedom in the matter of planting of the documents. 26. It was urged that due to harassment at the instance and motivation of Rakesh Gupta, Petitioner lodged complaint against him before IB, CBI and Police Dept. He also filed civil & criminal case against him i.e. Civil case for recovery of money introduced in „Mals‟ & „United‟ & criminal case for cheating him. Facing with these trials, Sh. Rakesh Gupta offered compromise through Court, according to which he offered demand draft of `1 lakh & two post dated cheque for `45 lakhs. During the period Rakesh Gupta also filed an affidavit to the effect that he handed over a slip of hand written papers about a Discount Bank with Account number and its address to the revenue officials. This slip was planted in the seized documents during search. It is not identified -either by witnesses or by the authorized officer or Chawla‟s representative. 27. It was also urged that no one was present at E-6, Anand Niketan, New Delhi, except one employee - Bhagirathi Sibbal, the receptionist. The search commenced on her arrival at 9 AM; however, the Panchnama stated that the search commenced at 8 AM. Kishan Lal and Hayat Singh, peons were the witnesses. Mrs. Sibbal and Kishan Lal deposed in affidavits that the search party did not offer themselves for search. 28. These irregularities, said counsel, were intentionally committed so as to plant certain documents. The affidavit of Sh. Rakesh Gupta; Mukul Sarin tape recorded conversation between the assessee, Sh. Rakesh Gupta and Sh. Anil Kapur S.I. of crime branch, prove the planting of documents. The respondent denied even the assessee‟s request for inspection of file and connected material on the basis of which the search was authorized. Thus, the petitioners are unable to make an effective, meaningful presentation of the case. 29. At the outset, this court notices that the primary evidence of tape-recorded conversation, i.e., the tapes, were not produced before the ITAT during the hearing. The ITAT concluded therefore that such taped conversation could not be taken as reliable evidence. The "planted material" contained Swiss bank account particulars and other related documents. The assessee had relied upon an affidavit of Rakesh Gupta and one Sh. Mukul to argue that this material had been handed over later. Significantly these affidavits were of much later vintage. In fact during the course of appellate proceedings, Ashok Chawla had relied upon an affidavit of Sh. Rajiv Gupta dated 06.07.2000 which affirmed the contentions of a previous affidavit dated 10.3.1997. A copy of another affidavit has also been placed on the record, which too is dated 06.07.2007 in which Rakesh Gupta states, "I have settled off important disputes/differences with Sh. Ashok Chawla amicably with the help and intervention of common friends." 30. Now these documents bespeak of a post-search settlement, between Ashok Chawla and Rakesh Gupta, which appears to have motivated Sh. 30. Now these documents bespeak of a post-search settlement, between Ashok Chawla and Rakesh Gupta, which appears to have motivated Sh. Rakesh Gupta to have alleged with respect to the planting the material. No attempt was made during the course of hearing, before the AO or the ITAT to suggest that the material allegedly planted had not been included in the inventory or list of items recovered. Furthermore, none of the letters contemporaneously written by Ashok Chawla, in fact alleged such conduct. As a result, this Court holds that these allegations like in the case of mala fides have not been proved. The record also shows that after Chawla lodged a criminal complaint for cheating, the parties reached a settlement, involving payment of amounts by Rakesh Gupta. The credibility of the affidavits relied upon, by Ashok Chawla, in these circumstances is suspect, to put it mildly. 31. As far as the alleged illegalities in the timing of the search, or that it was improbable that searches took place at two places - argued with certain vehemence by learned senior counsel, this court is of the opinion that nothing much turns on these so called infirmities. For one, the factual nature of these allegations, i.e., as to timing, as to presence of certain pancha or recovery witnesses, renders it somewhat difficult to substantiate. From a broader angle, whether the search occurred at 08:00 AM or an hour later, is left for verification by affidavits signed by the witnesses much after the event. Their signatures on the panchnamas at the time of the search belie the affidavits. These arguments at best could establish some irregularities, for which the Revenue might have had a perfect or plausible explanation, if made in time. However, even if accepted at face value, such facts cannot undermine the search, the recoveries effected or in any case and the validity of the block assessments. The assessee/Ashok Chawla‟s submissions in this regard are therefore, rejected. Second question: Did the ITAT fall into error in concluding that there was no infirmity in the framing of the assessment by an officer who was involved in the search and seizure operations 32. The assessee‟s argument on this aspect is that Mr. D. Roychowdhary, who was a party to the search and seizure proceeding, was also tasked or authorized to complete the assessment. This, in the assessee‟s submission, displayed a conflict and also resulted in a bias which vitiated the assessment order itself. The Revenue resisted this argument, successfully, and placed reliance on the ruling of the Supreme Court in Union of India v Vipin Kumar Jain 260 ITR 1 (SC). In that case, an argument identical with the one advanced by the appellant/assessee here was accepted by the High Court. The Revenue‟s appeal was allowed by the Supreme Court, which observed, in its judgment as follows: “6. In our view, this appeal must be allowed. The several sections which have been cited by the appellants would show that the Assessing Officer has, either directly or by virtue of his appointment or authorisation by a superior authority under the Act, been given the power of gathering information for the purposes of assessment. The mode of gathering such information may vary from the mere issuance of a notice under Section 142 to the more intrusive method of entry and search envisaged under Section 133A and 133B and seizure under Section 132. The appellants are also correct in their submission that in the absence of any challenge to any of these provisions, it was not open to the High Court to have disabled the Assessing Officer from discharging his statutory functions. What the High Court has done is to read limitations into the Act and to qualify the jurisdiction of the Assessing Officer and the powers of the authorities empowered to appoint the Assessing Officer as an authorised officer under Section 132 without any foundation for such conclusion being laid in any mannerwhatsoever by the writ petitioners. 7. Apart from the absence of any challenge to the provisions of the Act relating to the jurisdiction of the Assessing Officer to carry out the search under Section 132 subject to his being appointed as an authorised officer thereunder, we are of the view that there is no question of imputing or presuming a bias where action is followed under the section. The Assessing Officer is required to assess the income on the basis of facts as found. Such finding may be through any of the provisions referred to above. The only limitation on his drawing a conclusion from the facts as found is the requirement of allowing the assessee an opportunity of explaining the material. Even though it could be said that in a sense since the Assessing Officer was acting on behalf of the Revenue, in discharging the functions as an Assessing Officer, he was a party to the dispute, nevertheless there is no presumption of bias in such a situation. As said in H.C. Narayanappa v State of Mysore: "It is also true that the Government on whom the duty to decide the dispute rests, is substantially a party to the dispute but if the Government or the authority to whom the power is delegated acts judicially in approving or modifying the scheme, the approval or modification is not open to challenge on a presumption of bias. The Minister or the officer of the Government who is invested with the power to