Commissioner Of Income Tax v. M/S Real Overseas P. Ltd.through

$~1 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 232/2004 COMMISSIONER OF INCOME TAX..... AppellantThrough: Mr. Ruchir Bhatia, Adv. versus M/S REAL OVERSEAS P. LTD.Through: ..... Respondent CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRIO R D E R%09.03.2017 1.The question of law framed in this case is as follows: "Whether considering Section 158BA(2) with theExplanations and Section 158 (3) as also sub-section(l) of Section 158B, it is open to the assessing officerto include the income of the assessee, which is notdisclosed for assessment for the block period thoughthe transaction relating to such income is reflectedin the account books of the respective years?" 2.The facts of the present case are that the premises of one Mr.Alok Aggarwal were searched on 19.04.1996 resulting in a noticeunder Section 158BC of the Income Tax Act, 1961 (in short the Act)being issued to him.On the basis of materials seized during thecourse of the search, a notice under Section 158BD of the Act wasissued to the assessee calling upon it to file its return, which it did forthe concerned block period i.e. AY 1986-87 to 1996-97. The AO ITA 232/2004 added, in respect of AYs 1993-94 to 1996-97, the amounts of Rs. 5lacs, Rs. 25,000/-, Rs. 17,66,800/- and Rs. 24.35 lacs respectively. Asa matter of fact, the assessee had not filed returns for the AY 1993-94and 1995-96. The rationale for adding these amounts, may be foundin the following extract of the AO’s order: “.... In response to statutory notices, Sh. AshutoshAgarwal, AR of the assessee appeared from time totime and furnished the details. The assessee companyis engaged in the activities of giving accommodatingentries. The seized material and appraisal report wereexamined.The books of accounts and documentsseized from the above premises and the enquiries madein this case establish that shareholders are benami,they have signed blank receipts, blank sale bills, blankshare transfer forms and also confirmatory affidavitswhich form part of seized material in annexure A-38and A-97 of Panchnama dated 24.4.96/25.4.96.Theblank signed receipt (signed on revenue stamp) by thealleged shareholders mention that the shareholdershave received the amount against sale of share held bythem though the amount of cash and the distinctivenumber of shares are not mentioned in these receiptsbut as the receipts are found from the possession ofthe company M/s Real Overseas Pvt. Ltd., they havekept it in their possession to have control over thebenami shareholders and the amount and distinctivenumbers can be filled up by the company as per theirWill. The blank signed share transfer forms and blanksigned sale bills are kept by the company to havefurther control over the benami shareholders as withthe help of these documents, company can get transferthese shares in its name or in the name of any otherperson at their Will. Even the confirmatory affidavitsdo not mention the distinctive numbers of the sharesheld by the so called shareholders. It shows that the ITA 232/2004 shareholders are not even aware about their shares.The availability of these documents with the assesseecompany clearly shows that the allottees are not realshareholders and merely name lenders and the total onshares isinthe hands ofthecompany.Theshareholders have just lent their names and providedentries....” 3.The assessee appealed to the ITAT which was of the opinionthat since no material relatable to the assessee was discovered orseized in the course of search, the additions made by the AO wereunsustainable. ITA 232/2004 shareholders are not even aware about their shares.The availability of these documents with the assesseecompany clearly shows that the allottees are not realshareholders and merely name lenders and the total onshares isinthe hands ofthecompany.Theshareholders have just lent their names and providedentries....” 3.The assessee appealed to the ITAT which was of the opinionthat since no material relatable to the assessee was discovered orseized in the course of search, the additions made by the AO wereunsustainable. 4.The Revenue places reliance upon the findings of the AOespecially his allusion to A38 and A97 of the panchnama recorded on24.04.1996/ 25.04.1996.It was submitted that the blank sharetransfer forms, which did not even contain a reference to the sharetransfers, as well as the confirmation affidavits by the share investors,were a give away so far as the identity and genuineness of thetransactions were concerned. The Revenue highlights that the AO’sattempt to verify the assessee’s explanation were unsuccessfulbecause the inspector, who visited the premises of the shareapplicants, reported that they were not found at the said premises. Inthese circumstances, the counsel argued that there were sufficientmaterials relatable to the assessee to justify the search assessment inthis case. 5.The learned counsel for the assessee urged that the question ofmaterial relatable to the assessee did not arise because the assesseeITA 232/2004Page 3 of 5 was not subjected to search but was rather the recipient of the noticeunder Section 158BD of the Act.It was argued that to issue suchnotice, the AO had to satisfy himself, not merely prima facie, but alsothat there were credible materials relatable to the assessee whichcould impel an assessment for the block period. 6.Given the nature of the material seized in the facts of this case,the ITAT’s findings that block assessment notice under Section158BDoftheActwasunwarranted,cannotbesustained.Undoubtedly, the A38 and A97 of the panchnama were freshmaterials unearthed during the course of search, albeit in a third partypremises, but they clearly related to the assessee.In thesecircumstances, the notice issued under Section 158BD of the Act andthe consequential block assessment proceedings were warranted. 7.Although this Court has answered the question framed, at thesame time the facts are that such answer does not dispose of theappeal or the matter. For an addition under Section 68 of the Act, it isnow well settled [CIT vs Lovely Exports (P) Ltd. (2008) 216 CTR195 (SC)] that the AO has to be satisfied about the identity of theshare application, the genuineness of the transaction, and the creditworthiness of the investor. Whilst the inquiry in this case – i.e. theseizure of materials from the searched party, were entirely justified, anotice of final assessment with the additions that were ultimatelymade, could have been justified only after a proper finding in thatregard. 8.Here, the AO’s actions were lacking inasmuch as he did notITA 232/2004Page 4 of 5 diligently perform the task required of him. It was quite possible forthe AO to have inquired from the assessee and also found for himself,on the basis of inquiries into the bank accounts of the shareapplicants, as to whether the transactions were in fact as suspect as heconcluded. The addition under Section 68 of the Act can be justifiedonly if the AO also discharges the onus which is cast on him after theinitial material is disclosed. The order nowhere reveals that the AOever bothered to make such inquiry. 9.For the foregoing reasons, although the question of law isanswered in favour of the Revenue, the appeal has to fail. The appealis, therefore, dismissed. S. RAVINDRA BHAT, J MARCH 09, 2017/kk NAJMI WAZIRI, J ITA 232/2004