2007-VIL-336-ITAT-CHD

Equivalent Citation: [2007] 17 SOT 380 (CHD.)

Income Tax Appellate Tribunal CHANDIGARH

IT (SS) NO. 15 (CHD.) OF 2005 & OTHERS C.O. NO. 67 (CHD.) OF 2005 & OTHERS

Date: 29.06.2007

ASSISTANT COMMISSIONER OF INCOME-TAX, YAMUNA NAGAR

Vs

KISHORE LAL BALWANT RAI

BENCH

M.A. BAKSHI AND G.S. PANNU, JJ.

JUDGMENT

Per Bench

1. These are a group of appeals preferred by the Revenue and Cross Objections by different assessees arising out of the respective orders of the CIT(Appeals). The proceedings have a commonality apart from other issues inasmuch as the assessments have been framed by the ACIT, Yamuna Nagar by taking re-course to provisions of section 158BD read with section 158BC of the Income-tax Act, 1961 (in short ‘the Act’) for the block period ending on 14-9-1999. It was also a common ground between the parties before us that the facts and circumstances which have culminated in passing of block assessments under Chapter XIV-B of the Act on all the assessees spring from a singular action of search under section 132(1) carried out by the Revenue and therefore the issues raised are identical. For the above reasons, we have heard the aforesaid appeals and C.O.s together and proceed to dispose of the same by way of this consolidated order for the sake of convenience and brevity.

2. In order to facilitate the factual and other aspects leading up to the present proceedings, we take up for consideration specifically the appeal of the Revenue in IT(SS) No. 19/Chandi/05 and the corresponding C.O. preferred by the assessee by way of C.O. No. 58/Chandi/05. In this case an assessment under section 158BD read with section 158BC of the Act has been finalized by the ACIT, Yamuna Nagar vide his order dated 19-3-2004 whereby the undisclosed income has been assessed at Rs. 4,98,650. The said assessment has since been subject-matter of appeal before the CIT (Appeals) who has deleted the entire addition. Against such deletion the Revenue is in appeal.

3. In this case the genesis of the assessment is a search and seizure operation which was carried out by the revenue under section 132(1) of the Act at the residential premises of one Shri Anil Goyal at Jagadhari (hereinafter referred to as ‘dalal’). The search upon the said ‘dalal’, it emerges, was as a consequence of an action under section 132(1) of the Act which took place at the residential and business premises of Nand Lal Group of cases. The action under section 132(1) on ‘dalal’ was undertaken simultaneously with that of Nand Lal Group on 14-9-1999. Insofar as the present proceedings are concerned, what is of relevance is that a search action under section 132(1) took place in the case of ‘dalal’ on 14-9-1999. The said ‘dalal’ is a finance broker residing at Jagadhri and was an assessee with ITO, Ward-1, Yamuna Nagar. During the course of such search, a red bound ‘bahi’ was seized from the scooter of the ‘dalal’. The said red ‘bahi’ has been identified by the income-tax authorities as Annexure A-1 and we shall refer to it hereinafter as such . In the said Annexure A-1 the Revenue found certain entries. The statement of the dalal was recorded to ascertain the nature of entries contained in Annexure A-1. The said ‘dalal’ explained that Annexure A-1 contain a recording of monies lent and borrowed by various people undertaken through him and that he was earning dalali income/commission income from the business of broking. On the strength of the statements of ‘dalal’ the Revenue deduced the modus operandi of the business transcripted in the seized Annexure A-1. The names and addresses of the persons entered therein namely, the lenders and borrowers, were identified by the said ‘dalal’. On the basis of his statements, the Assessing Officer has deduced that the assessee in question has lent monies to various borrowers and earned interest thereon. To make the factual position complete, insofar as the present assessee is concerned, the following is the detail of lendings alleged to have been made by the assessee, yielding interest income, which has been culled out by the Revenue from Annexure A-1 :

4. The Assessing Officer issued notice under section 158BD of the Act on 15-3-2002 to the assessee and has thereafter finalized an assessment under Chapter XIV-B. The Assessing Officer noted that the aforesaid entries were not found recorded in the regular books of account of the assessee and therefore the amount of loan along with interest earned thereon represented undisclosed income chargeable to tax in terms of section 158BD read with section 158BC of the Act. The reasons which weighed with the Assessing Officer to hold so can be summarized as follows :

(i)That the Annexure A-1 was found during the course of search operation from ‘dalal’ and the entries therein are in his own handwriting. That therefore the contents of the Annexure A-1 as disclosed by ‘dalal’ are to be accepted as correct.

(ii)That the said ‘dalal’ was found to be in the business of money lending and therefore the entries recorded in Annexure A-1 corroborated the fact that his business was that of a money lending broker and thus the transactions recorded can be said to have taken place.

(iii)That the ‘dalali’ income declared by ‘dalal’ in his returns corroborated the contents of entries in Annexure A-1.

(iv)That Annexure A-1 also contained recording of transactions between lender and borrowers which were made through banking channels apart from those made in cash. The transactions which were carried out through banking channels stood verified and therefore this aspect lent credibility to the contents of Annexure A-1 relating to the transactions which were recorded in cash also.

For the above reasons, the Assessing Officer held that the impugned amount reflected unexplained investment made by the assessee which were not recorded in his regular books of account and therefore the same were liable to be taxed in terms of section 69 of the Act. Accordingly a sum of Rs. 4.70 lakhs was considered as assessable under section 69 of the Act and interest earned thereon @ 18 per cent for the respective period found recorded in the Annexure amounting to Rs. 28,650 has also been brought to tax, thereby resulting in determination of undisclosed income at Rs. 4,98,650. The CIT (Appeals) has since deleted the addition inter alia for the following reasons:

(a)That there was no corroborative and independent evidence brought out by the Assessing Officer to justify a conclusion that Annexure A-1 represented actual transactions carried out. According to the CIT (Appeals), in the absence of such evidence being brought on record by the Revenue, the transactions as transcripted by the ‘dalal’ could not be taken as ‘genuine’.

(b)According to the CIT (Appeals), the evidence in the shape of the Annexure A-1 was unreliable.

(c)The CIT (Appeals) also took into consideration the fact that the borrowers identified in the instant case have denied having borrowed any amount from the assessee at any point of time.

(d)With regard to those transactions which were carried out through bank and which stood verified, the CIT (Appeals) came to a finding that the Assessing Officer in the instant case has not established that any of the transactions in question were carried out by the assessee through bank. Therefore according to him the said plea could not be utilized against the assessee in this case.

Against the deletion of addition by the CIT (Appeals), the Revenue has come in appeal before the Tribunal.

5. On the issue of the merits of the addition, we have heard lengthy arguments of the rival parties vis-á-vis the Grounds of appeal preferred by the Revenue. The sum and substance of the argument advanced by Smt. Sukhwinder Khanna, the Learned Sr.DR on behalf of the Department are on the following lines:—

6. According to her the CIT (Appeals) has grossly erred in not accepting the contents of Annexure A-1 as credible evidence. Learned DR pointed out that Annexure A-1 was maintained by ‘dalal’ in the course of carrying on his business of finance broking which was found in the course of a search operation and therefore, the contents of the Annexure can be understood to have been recorded without any pre-mediated mind, thus enabling an inference to be drawn that its contents are true and correct. According to her, the fact that the names in Annexure A-1 were recorded in abbreviated form or the amounts were recorded in coded form cannot straightaway be taken as a justifiable reason to disregard its contents. The learned DR pointed out that consequent to the seizure of Annexure A-1, the Investi-gation Wing of the department had examined ‘dalal’ on several occasions and it was during the course of such examination ‘dalal’ gave complete details of the transactions recorded in the Annexure, namely names and addresses of the lenders and borrowers; rate of interest; mode of payment; and the ‘dalali’ income thereon. That the reading of the Annexure along with the statements of ‘dalal’ would show that the Annexure was self-explanatory and a credible piece of evidence giving exhaustive details of the transactions carried out between borrower and lenders, which have been kept away from the eyes of the Revenue. That the transactions, which have been carried out through banking channels, have been put to verification by the Department and the parties have admitted the same. The learned DR vehemently submitted that this singular aspect is enough to support the fact that the evidence in the shape of Annexure A-1 was reliable and that the same has been maintained by ‘dalal’ in his regular course of business.

7. Insofar as the plea of the CIT (Appeals) that the borrowers and lenders have both denied the cash transactions, learned DR pointed out that ostensibly the said stand clearly showed collusive arrangement. According to her, as the transactions are carried out in cash, the denials can be explained as mere self-serving stand. She pointed out that the transactions made in cash attract the penal provisions of sections 269SS and 269T of the Act and therefore the denials of the parties in this connection are self-explanatory.

8. The learned DR has also taken another interesting argument to support the evidentiary value of Annexure A-1. According to her, the main search took place in the case of Nand Lal Group who was alleged to be carrying on money lending activities and the Group was found to have used the services of ‘dalal’ and thus a simultaneous search operation was carried out at the premises of ‘dalal’. The unearthing of Annexure A-1 from the premises of ‘dalal’ corroborated the fact that Nand Lal Group was indulging in lending and borrowing of money outside the books of account. Therefore, its authenticity and evidentiary value in relation to other transactions also stood established.

9. Assailing the order of the CIT(Appeals) that there was no corroborative evidence with the Revenue, the learned DR pointed out that the CIT(Appeals) has not specified as to what kind of evidence is required to corroborate the inference drawn by the Assessing Officer. Reiterating that the Annexure A-1 has been duly explained by ‘dalal’ and having found that the same was maintained by him in the regular course of carrying on normal business, the entries contained therein are to be taken as representing the true state of affairs. The learned DR further submitted that the fact that a number of entries of Annexure A-1 stood verified, this itself was a corroborative evidence in support of the contents of the diary. The learned DR pointed out that in such situations it would be impossible on the part of the Revenue to bring on record a direct evidence of the lenders and borrowers having entered into transactions in cash.

10. The learned DR pointed out that while appreciating the evidence in question it has to be borne in mind that the same has been not voluntarily brought on record by ‘dalal’ but has been unearthed as a consequence of a search operation undertaken by the Department. According to her, on account of preponderance of probability and surrounding circumstances, the Assessing Officer was justified in inferring that the impugned transactions actually took place between the lenders and borrowers recorded therein, which were not declared in their regular books of account by the respective parties.

11. The learned DR relied upon the decision of the Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 for the proposition that where direct evidence is not readily available or possible, one has to fall back on the circumstantial evidence and apply the test of human probabilities. According to her in the instant case the evidence in question, having been found in the course of search, is to be taken as reflecting true and correct affairs. The learned DR pointed out that the assessee has failed to rebut the contents of the Annexure on the basis of any cogent evidence. The assessee was allowed opportunity to cross examine ‘dalal’ in the course of the assessment proceedings. That therefore, in the face of such onus having been discharged by the Revenue, it cannot be the case, as made out by the CIT (Appeals), that the Revenue has not been able to produce any corroborative evidence in support of the conclusion of the Assessing Officer.

12. According to the learned DR, the seized document has to be accepted as true or otherwise in its entirety and not on a pick and choose basis. She submitted that Annexure A-1 contain both kind of entries, i.e. transactions done by cheque which are recorded in the books of account of the respective parties; and, transactions done in cash which have been denied by the respective parties. Thus, the entries relating to transactions in cash cannot be viewed in isolation. In this background, the learned DR submitted that the CIT(Appeals) has erred in giving prominence to the self-serving denials of the borrowers and no weightage at all has been given to the hardcore evidence of verifiable bank entries which stood verified and confirmed by the respective parties.

13. Apart from the aforesaid submissions the learned DR has in detail also assailed the reliance placed by the CIT(Appeals) on various case laws. With regard to the decision of Supreme Court in the case of CBI v. V.C.Shukla [1998] 3 SCC 410, it is submitted that the said decision has been rendered in a different context. The said decision was in relation to criminal proceedings under the Prevention of Corruption Act, 1988. According to her the technical rules of law of evidence do not apply to the income-tax proceedings and for that matter referred to the Third Member decision of the Tribunal in the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune). According to her the rigors of the Evidence Act which has been applied in the case of V.C. Shukla (supra) with respect to criminal proceedings cannot be made applicable to the income-tax proceedings as in the present case. According to her the same were inapplicable to the facts in the instant case. Regarding the decision of the Hon’ble Punjab & Haryana High Court in the case of Mohan Lal Vig (supra) the learned DR pointed out that the conclusion of the Hon’ble High Court has to be read in the background of the facts of the case. In the case before the Hon’ble High Court, there was no Seizure Memo which reflected the seizure of the ‘dasti bahi’ in question and therefore, it created a doubt as to whether or not the evidence in question was recovered from the business premises of the assessee or not and hence the inference that transactions reflected by ‘dasti bahi’ could not be used as evidence against the assessee. Pointing out that the facts in the instant case stand on a totally different footing inasmuch as there is no doubt that Annexure A-1 has been found and recovered from ‘dalal’, who has maintained it in his own handwriting and in the normal course of carrying on his business of finance broking. That therefore, the CIT (Appeals) has erred in importing the reasoning of the Hon’ble Punjab & Haryana High Court in the case of Mohan Lal Vig (supra) to the facts of the instant case. Similarly learned DR has also argued that the decision of the Hon’ble Punjab & Haryana High Court in the case of Chiranji Lal Steel Rolling Mills v. CIT [1972] 84 ITR 222 is also inapplicable to the facts of the present cases.

In nut-shell the learned DR concluded her arguments by making the following points :

(1)That the CIT(Appeals) erred in disregarding the fact that Annexure A-1 was maintained by the broker in the normal course of business inasmuch as it stands established that the ‘dalal’ was indeed in broking business.

(2)that the contents of Annexure A-1 carry evidentiary value as part of the transactions carried out through banking channels stood verified.

(3)That the CIT(Appeals) erred in relying on the self-serving statements of the lenders and borrowers where they have denied the cash transactions recorded in Annexure A-1.

(4)That the CIT(Appeals) has not correctly appreciated the import of the presumption available under section 132(4A) of the Act with regard to the seized material.

(5)That the CIT(Appeals), under the facts and circumstances of the case should have given adequate weightage to surrounding and circumstantial evidence to find out the reality and truthfulness of the cash transactions recorded in Annexure A-1.

14. Assailing the arguments of the learned DR, the counsel for the assessee Shri Ashwani Kumar has, at the out set submitted that the decision of the CIT(Appeals) in concluding that there was no material with the Revenue on the basis of which the assessee could be linked with the transactions recorded in Annexure A-1, was unassailable and justifiable on facts. The learned counsel pointed out that the CIT(Appeals), after examining the entire material on record reached a finding that the Revenue had not found any paper or document which could prove the stand of the Assessing Officer against the assessee whereas the assessee had filed confirmations from the parties who had denied borrowing of money from the assessee. Coming to the arguments made by the learned DR it is submitted that the entire case of the Revenue is on the basis of the statement of ‘dalal’ dated 20-1-2000 with respect to entries found to be recorded in Annexure A-1 seized from him. In this connection it is submitted that the said statement is unreliable. According to the learned counsel, if one was to analyze the conduct of ‘dalal’ starting from the date of search and subsequently when the explanation regarding the entries in Annexure A-1 has been provided by him, the same shows contradictions and unreliability. The learned counsel pointed out that during the course of examination by the department on several occasions prior to 20-1-2000 ‘dalal’ had categorically stated that he does not know the name of any person written in the Annexure A-1 and then in a complete turn around narrates each and every detail in one sitting running into 50 pages on 20-1-2000. Insofar as the contents of Annexure A-1 are concerned, it is argued that the material itself cannot be considered as a document evidencing actual state of affairs. Moreover, the said ‘dalal’ has put different signatures on different dates on the statement showing his inconsistent nature. In any case, it is argued that the name of the assessee respondent does not appear in the said Annexure. The name of the assessee and also the amounts said to have been lent by the assessee has been inferred only on the basis of the alleged explanation of ‘dalal’. If the seized material is read without the explanation of ‘dalal’ it remains only a ‘dumb document’, which does not exhibit any income, much less undisclosed income belonging to the assessee. The learned counsel thus submitted that the search material per se does not indicate the name of the assessee, amount transacted, the nature of transaction, etc. and hence it does not establish any link with the assessee. The learned counsel pointed out that ‘dalal’ was examined by the Department on various dates starting from 14-9-1999 i.e. the date of search and thereafter on 30-9-1999, 2-11-1999, 4-11-1999 and 20-1-2000. Pointing out that on the date of search (i.e. 14-9-1999), the ‘dalal’, in reply to a specific query as to what were the items dealt with by him as a Commission agent had emphatically stated that he was working as a broker in all types of items such as metal, food grains, plots etc. including brokerage for money. The learned counsel has taken us through the contents of the statements recorded on various dates to justify his premise that there are contradictions, in completeness and vagueness in the replies of ‘dalal’. For this reason, it is vehemently submitted that such evidence and material is unreliable and cannot be relied to fasten a tax liability on the assessee. For instance, it was pointed out that ‘dalal’ admitted in the statement recorded on 14-9-1999 that he was doing dalali business in money lending whereas in the second statement recorded on the same day he submitted that he was not involved in the arranging of loans and advances (reference was invited to pages 78 and 82 of the paper book filed by the assessee). He further pointed out that ‘dalal’ in a statement recorded on 30-9-1999 (page 87 of the paper book) in reply to a question stated that he was not aware as to which party had advanced the money and which party had borrowed since his task was only to arrange a meeting of the parties. Thus, the ‘dalal’ was not even aware of the modus operandi between the parties implicated by him. It is vehemently argued that ‘dalal’ has admitted that the money lending transactions alleged to be contained in the Annexure A-1 were neither actually transacted through him and nor took place in his presence. It was submitted that in statement recorded on 2-11-1999 (page 92 of the Paper Book) the ‘dalal’ was confronted with two receipts which were found from his house with respect to money lending. The learned counsel pointed out that both the receipts have been accepted by ‘dalal’ as being relatable to the money lending carried out by his wife and nephew. On this basis, it was therefore submitted that the money lending was indeed carried out by ‘dalal’ and cannot be attributed to the assessee in question since his name does not figure in the Annexure seized. It was thereafter argued that Annexure A-1 can at best be taken as a record of incomes of transactions of the ‘dalal’ himself. To support this, the learned counsel pointed out that ‘dalal’ has claimed that he has worked out his commission income on the basis of entries made in Annexure A-1 and such a claim has been accepted by the Assessing Officer in the assessment of ‘dalal’ finalized under section 158BC on 21-5-2001. A specific reference was made to the statement recorded on 4-11-1999 (page 98 of Paper Book) wherein the said ‘dalal’ categorically admitted that the bahi reflected his brokerage income and that the recordings contained therein did not represent any codes or abbreviations. The learned counsel submitted that the only statement that is being used against the assessee is dated 20-1-2000, a copy of which has been placed in the Paper Book. The learned counsel pointed out that the said statement cannot be used against the assessee inasmuch as the same has been illegally procured by the Revenue. According to the learned counsel the said statement is alleged to have been recorded by DDIT, Ambala. According to him a DDIT can record a statement under section131(1A) before taking action under any of the clauses (i) to (v) of section 132(1). Pointing out that it is not clear as to under what section the DDIT had recorded the statement of ‘dalal’, but on the date of recording of the said statement, the search conducted on 14-9-1999 at the premises of the ‘dalal’ had concluded and therefore there was no occasion for the DDIT to record a statement in terms of section 132(4) of the Act. Apart from the above, there was no section permitting a DDIT to record a statement since the search proceedings were not pending as on that date. In this connection reference was invited to the decision of the Tribunal in the case of Monga Metals Pvt. Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 247¹ wherein the Tribunal held that the block assess-ment made on the basis of the statements recorded by an authorized officer after the conclusion of search was to be declared as void ab initio for want of a valid jurisdiction.

15. Arguing further with regard to the veracity of the statement recorded on 20-1-2000 the learned counsel pointed out that it clearly shows that it cannot be called a statement in the true sense "as it seems that some essay was written by the declarant". The learned counsel vehemently submitted that the explanation rendered by ‘dalal’ regarding the names, amounts and nature of transactions have to be read in the context of pressure on him to escape from the rigors of the material found from him in the course of search. The learned counsel pointed out that in all the previous statements recorded right from the date of search i.e. 14-9-1999, ‘dalal’ consistently maintained that he does not know the name of the persons written in the seized documents and was also not aware as to who were the borrowers and the lenders and as to what was the nature of transactions. It is, therefore, inexplicable that all of a sudden a person with such mental position gives details with regard to Annexure A-1 in a single sitting as can be seen from the statement dated 20-1-2000. In connection with the veracity of the statement of ‘dalal’ dated 20-1-2000 the learned counsel submitted that the names of ‘Prince’, ‘Anuradha’ and ‘Santosh’ found recorded in Annexure A-1 have been explained as referring to the transactions undertaken by Nand Lal Garg Group; and, such explanation has been accepted by the Revenue. However, such stand has not met with the approval of Income-tax Settlement Commission (ITSC) vide its judgment dated 9-1-2007, a copy was placed on record. It is submitted that in para 26 of its order, the Hon’ble ITSC has held as under:

"26. We have considered the rival submissions. Considering the overall facts and the material, we are of the opinion that the only statement of Anil Kumar links the applicant with the three names viz. Anuradha, Prince and Santosh. We are of the opinion that the evidence is not adequate to link the findings through the ledger as that of the applicant. No other evidence is found. Under these circumstances, we hold that no addition is called for on this account."

Therefore, the statement of ‘dalal’ cannot be straightaway relied upon as it has not found to be reliable even by the ITSC.

15.1 Apart from arguing that the statement attributable to ‘dalal’ was unreliable, it is also submitted by the learned counsel that there was no corroborative or other evidence with ‘dalal’ to support the explanations so rendered. The learned counsel argued that the Assessing Officer erred in accepting contents of the statement dated 20-1-2000 as representing true state of affairs whereas the conduct of ‘dalal’ itself showed that the evidence tendered by him was unreliable. Otherwise also the learned counsel submitted that the names found entered in Annexure A-1 were short names, various religious names, caste names etc. and nothing intelligible could be deciphered to implicate the assessee in the present case. The learned counsel submitted that the explanation rendered by ‘dalal’ which has been used to rope in the assessee to the provision of Chapter XIV-B is to be understood as blackmailing tactics of ‘dalal’ to escape his own rigours of tax. Notwithstanding the aforesaid, the learned counsel again reiterated that all along the said broker has confirmed that he was not a witness to any actual money transaction between the parties whose names he claimed to have recorded in the Annexure A-1. Learned counsel pointed out that this itself demonstrated that the said material cannot be relied upon to reach an inference that the assessee has entered into any transaction of lending money in cash which have yielded income not declared in the books of account.

16. It is further submitted that the contents of the Annexure A-1 cannot be ipso facto taken as correct for the reason that it cannot be equated to be books of account maintained in the normal course of business. In this connection, it is pointed out that the bahi is not maintained in a chronological manner and in fact is replete with extrapolations; it contains certain dates which are even subsequent to the date of search. In this connection our attention was invited to page 2 of the assessment order wherein entries alleged to be belonging to the assessee as contained in the bahi have been enumerated. Evidently the alleged entries are not in a chronological order it was contended that the seized document cannot be said to be a record maintained in the regular course of business. It is reiterated that insofar as the assessee is concerned, there is no corroborative evidence available with the Revenue that the entries alleged to have been explained by ‘dalal’ as belonging to the assessee are true.

In the course of submission the learned counsel has relied upon various decisions viz. V.C. Shukla’s case (supra), Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 (Bom.), Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi), Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune)(TM).

17. In reply, the learned DR reiterated that the DDIT was competent to record the statement dated 20-1-2000 inasmuch as it was recorded in continuation of the search proceedings conducted on 14-9-1999 and filed a sequence of events starting with the date of search and upto the date of recording the statement of ‘dalal’. The learned DR admitted that the DDIT had issued summons under section 131 in response to which the statement in question has been recorded. The learned DR argued that, in any case, a DDIT is authorized to record the statement of a person under section 131(1A) to make enquiries/investigation even in cases where no proceeding with respect to such person is pending. Therefore, according to her, even if section 132(4) is found to be inapplicable in this case, section 131(1A) comes to the rescue regarding the authority of DDIT to record the statement of ‘dalal’. Thus the statements of ‘dalal’ on 30-9-1999, 2-11-1999, 4-11-1999 and 20-1-2000 have been lawfully recorded. Regarding the plea that the Annexure A-1 seized was a dumb document, learned DR submit-ted that it was a diary maintained by a broker and written in the regular course of his business. According to her it is only when the said Annexure is read along with the explanations tendered by the broker that it emerges that the transactions contained therein belong to the assessee and that the same have not been declared in the regular books of account.

17.1 Regarding the plea of the assessee that the statements of ‘dalal’ are unreliable inasmuch as he has signed differently on different dates, learned DR pointed out that in the statement recorded on 20-1-2000, the signature of ‘dalal’ tally with the signatures put on the return of income filed by him. It is further submitted that the earlier statements and the statement dated 20-1-2000 cannot be said to be contradictory in nature. The only aspect is that initially the statements were not complete and it is only in the month of January, 2000 that ‘dalal’ made full disclosure. Regarding the authenticity of the statement of the ‘dalal’ the learned DR pointed out that in a large number of transactions found in Annexure A-1, verifications were carried out by the department which have been found to be in order. The learned DR pointed out that although in the case of assessee, there was no cheque transactions yet the evidence in question has to be considered in its entirety and placed reliance on the decision of this Tribunal in the case of Napar Drugs (P.) Ltd. v. Dy. CIT [2006] 98 ITD 285 (Delhi)(TM). The learned DR also relied upon the decision of the Hon’ble Punjab & Haryana High Court in the case of R.P. Vashisht v. Dy. CIT [IT Appeal No. 333 of 2006, order dated 5-9-2006]¹ to point out that the strict rules of evidence as contemplated under criminal proceedings cannot be applied in the same manner to the income-tax proceedings. That therefore the evidence which has not been construed to be good evidence in the case of V.C. Shukla (supra) because of the specific provisions of the Prevention of Corruption Act cannot be so rejected in the income-tax proceedings.

18. Regarding the order of Income-tax Settlement Commission in the case of Nand Lal Group of cases, the learned DR submitted that the issue in the case of the present assessee stands on a different footing than in the case before the Income-tax Settlement Commission. According to her in the case of Nand Lal Group ‘dalal’ had claimed to have maintained accounts in benami names which were being denied by Nand Lal Group. In the case of the assessee it was not so. There are no benami names.

18.1 The aforesaid arguments of the assessee and the Revenue relate to the merits of the addition deleted by the CIT(Appeals). In the Cross Objection (C.O. No. 58/Chandi/05), the assessee has challenged the validity of assumption of jurisdiction by the Assessing Officer by issuance of notice under section 158BD read with section 158BC of the Act. We find it appropriate to record hereinafter the rival submissions on this issue.

19. The plea of the assessee is that the proceedings initiated by issuance of notice under section 158BD dated 15-3-2002 are unsustainable in law and thus invalid. The challenge to the issuance of notice under section 158BD has been made by assessee on several counts. Firstly, it is submitted that the recording of satisfaction contemplated under section 158BD is a condition precedent and which has been recorded by the Assessing Officer on 15-3-2002 is belated in law and is without jurisdiction. According to the learned counsel the satisfaction contemplated under section 158BD to the effect that any undisclosed income belongs to a person other than the searched person is to be recorded by the assessing authority of the searched person whereas in this case the same has been recorded by the Assessing Officer of the assessee with respect to whom no search action has been taken. In this connection our attention has been drawn to the stand of the Assessing Officer before the CIT(Appeals) wherein it is stated that the satisfaction contemplated under section 158BD has been correctly recorded by the Assessing Officer on 15-3-2002 and the same was not required to be recorded by DDIT, Ambala. The failure to record the requisite satisfaction by the Assessing Officer of the person searched vitiates the issuance of notice under section 158BD of the Act. Secondly the learned counsel pointed out that the satisfaction purportedly recorded on 15-3-2002 is belated as assessment in the case of ‘dalal’ was finalized in the month of May, 2001 itself. Thirdly it is pointed out that even on the basis of the material on record the Assessing Officer could not have come to a satisfaction that any undisclosed income belongs to the assessee inasmuch as the name of the assessee does not figure in the seized Annexure A-1. The only basis for assuming so is the statement of the ‘dalal’ which has been utilized to arrive at the satisfaction contemplated under section 158BD. The learned counsel pointed out that the statements of ‘dalal’ are liable to be ignored inasmuch as they have been recorded by the DDIT without authority of law. For this proposition reliance was placed on the decision of Mumbai Bench of the Tribunal in the case of Mukund V. Kapadia v. ITO [2002] 82 ITD 489. It is submitted that a DDIT can record a statement under the power of section 131(1A) of the Act but only before taking action under clauses (i) to (v) of section 132(1), therefore the statement recorded post search (i.e. after 14-9-1999) on 30-9-1999, 2-11-1999, 4-11-1999 and 20-1-2000 are without authority of law. In fact, consequent to the search on ‘dalal’, which stood concluded on 14-9-1999 itself, the DDIT could not invoke section 132(4) to record the statement of the ‘dalal’. Thus the statements which have been recorded by DDIT by issue of summons under section 131 are to be ignored as the same are illegally procured. If the statements are ignored, there does not remain any material whatsoever to implicate the assessee under the provisions of Chapter XIV-B of the Act. Reference was invited to the decision of the Tribunal in the case of Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 247 regarding the nature of statements recorded by the authorized officer after conclusion of search and its relevance for making a block assessment. Notwithstanding the aforesaid, it is pointed out that the statement recorded in the month of January, 2000 also becomes suspect considering the conduct of the ‘dalal’ in the past and in this connection, the earlier submissions have been relied on. In the course of submissions the learned counsel has relied upon various decisions viz. Manish Maheshwari v. Asstt. CIT [2007] 289 ITR 341 (SC), Amity Hotels (P.) Ltd. v. CIT [2005] 272 ITR 75 (Delhi), Janki Exports International v. Union of India [2005] 278 ITR 296 (Delhi), Priya Blue Industries (P.) Ltd. v. Jt. CIT [2001] 251 ITR 615  (Guj.), Khandubhai Vasanji Desai v. Dy. CIT [1999] 236 ITR 73 (Guj.), Ved Parkash Sanjay Kumar v. Asstt. CIT [2001] 76 ITD 107 (Chd.).

20. Contesting the claim of the assessee’s counsel, the learned DR argued that the assessing authority in this case has issued notice under section 158BD on a valid basis. According to her the notice under section 158BD was based on the satisfaction of the Assessing Officer that the transactions recorded in Annexure A-1 belong to the assessee and that such transaction indeed reflected undisclosed income of the assessee. The learned DR submitted that notice under section 158BD has been issued after arriving at a satisfaction contemplated under section 158BD. The learned DR relied upon the decision of the Amritsar Bench of the Tribunal in the case of Vijay Sehgal, HUF v. Asstt. CIT [2006] 100 ITD 560 to submit that unlike the requirement of section 147/148 where recording of reasons is mandatory, no such requirement could be read into section 158BD of the Act. The learned DR submitted that it would be sufficient if it can be inferred on the basis of the material on record that Assessing Officer was satisfied that the requirements of section 158BD have been met. In this case, notice under section 158BD has been issued after conducting necessary verification exercise in relation to the entries recorded in Annexure A-1. According to her the manner in which the entries were recorded in the Annexure and its verification carried out in the course of the assessment proceedings in the case of ‘dalal’ itself show that the Assessing Officer was satisfied that certain undisclosed income belonged to the assessee. The learned DR also pointed out that in the instant case the Assessing Officer having jurisdiction over the person searched and the assessee is same. Therefore, the requirement of recording the satisfaction and transmission of relevant materials by the Assessing Officer of the person searched to the Assessing Officer of the other person stood complied with. The learned DR also made a reference to the commentary ‘Law of Income-tax’ by Sampath Iyengar at pages 8687-8688. According to the learned DR, the wording of section 158BD contemplated only a situation where the Assessing Officer of the searched person and the ‘other person’ are different, whereas the situation herein is different. In this connection in nutshell the stand of the Revenue is that the jurisdiction in this connection has been correctly assumed by the Assessing Officer.

21. We have considered the rival submissions carefully. We find it expedient to consider and adjudicate the validity of issuance of notice under section 158BD of the Act at the outset. This is for the reason that if the issuance of notice under section 158BD by the Assessing Officer is found to be invalid, that aspect being an incurable jurisdictional defect would lead to cancellation of assessment order itself. Thus, this aspect, which goes to the root of the matter is therefore, considered at the outset.

22. Before we proceed to dilate on the issue concerning the validity of action under section 158BD we find it appropriate to refer to the scheme and the purport of Chapter XIV-B dealing with the procedure for making assessment in the cases of search which has been inserted in the Act by the Finance Act, 1995 consisting of sections 158B to 158BH with effect from 1-7-1995. Under these provisions the undisclosed income detected as a result of a search initiated or requisition made after 30-6-1995, was required to be assessed separately as income of a block of 10 previous years. Where the previous year had not ended or the due date for filing return of income for any previous year had not expired, the income recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course relating to such previous years was not includible in the block assessment. The synopsis of the said Chapter as introduced containing sections 158B to 158BH can be understood as follows. Section 158B provides definition of the expressions ‘block period’ and ‘undisclosed income’; section 158BA provides for assessment of undisclosed income as a result of search initiated or requisition made on or after 1-7-1995; section 158BB relates to computation of undisclosed income of the block period; section 158BC lays down the procedure of block assessment; section 158BD makes provisions for assessment of undisclosed income of any person other than the person searched; section 158BE fixes time limit for completion of block assessment; sections 158BF and 158BFA deal with interest and penalties in the case of block assessment; section 158BG deals with the authority competent to make the block assessment; and, section 158BH keeps applicability of other provisions of the Act to a block assessment intact. Evidently, Chapter XIV-B is a complete Code by itself with respect to assessment in the cases of search. Shorn of other details, it is evident that the basic foundation for framing of block assessment is the existence of an action of search under section 132 or requisition under section 132A of the Act. The salient features of the special procedure are that the undisclosed income of a person is assessed as income of the block period consisting of 10 previous years prior to the previous year in which the search was conducted and also the period of current previous year upto the date of search; that the undisclosed income of the block period is taxed at a flat rate of 60 per cent which is higher than the normal rate of taxation. It is pertinent to understand that an assessment under Chapter XIV-B results in taxation of ‘undisclosed income’ at a rate higher than the normal rates of taxation. The underlying grain in Chapter XIV-B, as is evident from the text of the relevant provisions contained therein, is the emergence of undisclosed income as a result of a search under section 132 or a requisition under section 132A of the Act. The existence of a search action under section 132 or a requisition under section 132 is thus a condition which enables the Assessing Officer to invoke the procedure of assessment prescribed under section 158BC of the Act. Generally, it is only the person with respect to whom search under section 132 or a requisition under section 132A is made that is subjected to the procedure of block assessment prescribed under Chapter XIV-B of the Act. The only exception to this is contained in section 158BD of the Act. Section 158BD of the Act seeks to provide for assessment of undisclosed income in terms of the procedure prescribed under Chapter XIV-B in the case of a person other than the person who is put to search under section 132 or a requisition under section 132A of the Act. It is this section which is the source of controversy before us. Needless to say, the operation of section 158BD enables the Assessing Officer to put a person who has been subjected neither to search under section 132 nor a requisition under section 132A of the Act on par with a person who has been subjected to a search under section 132 or a requisition under section 132A of the Act. It is, therefore to be understood that section 158BD provides a jurisdiction to the Assessing Officer to bring within the ambit of Chapter XIV-B even the persons who have otherwise not been subjected to search under section 132 or requisition under section 132A, the two conditions which are otherwise necessary to frame an assessment under Chapter XIV-B. With this background we proceed to read section 158BD which is the epicenter of controversy before us :

"158BD. Undisclosed income of any other person.—Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly." [Emphasis supplied]

From its perusal, the pre-requisites for invoking section 158BD can be understood as follows:—

(i)That the Assessing Officer is to be satisfied that undisclosed income belongs to a person other than the person put to search under section 132 or a requisition under section 132A of the Act;

(ii)the books of account, other documents or assets seized or requisitioned are thereafter required to be handed over to the Assessing Officer having jurisdiction of such other person; and

(iii)thereupon the Assessing Officer of such other person shall proceed against such other person and provisions of Chapter XIV-A shall apply accordingly.

23. The nature of the provisions of section 158BD has been the considered by the Hon’ble Apex Court in the case of Manish Maheshwari (supra). The Hon’ble Apex Court held that before Chapter XIV-B could be invoked against a person other than a person who is put to search under section 132 or a requisition under section 132A, the conditions prescribed under section 158BD are required to be strictly complied with. The Hon’ble Supreme Court has held that conditions precedent in such cases, for taking recourse of block assessment in terms of section 158BD require the Assessing Officer to record a satisfaction that any undisclosed income belongs to any person other than the person with respect to whom search is made under section 132 or a requisition is put under section 132A of the Act. Secondly the books of account or other documents or assets seized or requisitioned are required to be handed over to the Assessing Officer having jurisdiction over such ‘other person’. It is further noted by the Hon’ble Supreme Court that only upon the happening of the aforesaid that the Assessing Officer having jurisdiction of the ‘other person’ shall proceed under section 158BC against such other person. With the above discussion, a premise, which can be safely deduced, is that the satisfaction as contemplated under section 158BD is to be of the Assessing Officer of the person who has been put to search or requisition under section 132 or 132A respectively. Another premise which can be safely deduced from the decision of the Hon’ble Supreme Court is that the requirement of recording of such satisfaction is a mandatory condition. At this stage we may refer to and reject the plea advanced on behalf of the revenue that the satisfaction in such cases only be discernible on the basis of material available on record and such satisfaction need not be specifically recorded. The learned DR has argued that satisfaction is not prescribed to be recorded in writing, as is prescribed under section 148 of the Act. The departmental view has been sought to be canvassed on the basis of the decision of Special Bench of the Tribunal in the case of Y. Subba Rao & Co. v. Asstt. CIT [2004] 270 ITR (AT) 174¹ (Bang.) and also the decision of the Amritsar Bench in the case of Vijay Sehgal, HUF (supra). To our mind the aforesaid proposition is against the tone and tenor in which the provisions of section 158BD have been understood and explained by the Hon’ble Supreme Court in the case of Manish Maheshwari (supra). A perusal of the last para in the judgment of the Hon’ble Supreme Court makes the position clear. While remaining on this aspect we may also gainfully make a reference to the judgment of the Delhi High Court in the case of Amity Hotels (P.) Ltd. (supra). The revenue in the case before the Hon’ble Delhi High Court set up an argument that satisfaction is not required to be recorded. The Hon’ble Court has rejected the said plea of the revenue. We therefore, are of the opinion that the satisfaction contem- plated under section 158BD to the effect that any undisclosed income belongs to any person other than the person with respect to whom search was made under section 132 or requisition made under section 132A is to be recorded in writing by the Assessing Officer of the person with respect to whom search under section 132 or a requisition under section 132A is made. The argument of the revenue to the contrary in this regard has to fail. Another argument linked with this aspect taken by the revenue was to the effect that in the instant case the Assessing Officer who has passed the assessment order in the case of the person with respect to whom search under section 132 has been carried out as well as in the case of the assessee (i.e. a person not put to search under section 132 or requisition under section 132) is common namely ACIT, Yamuna Nagar and thus the said Assessing Officer could, as well issue the notice under section 158BD to the assessee, on 15-3-2002 without recording the necessary satisfaction. We will take up this plea of the revenue in detail a little later in our order.

24. Other aspects of section 158BD which are of relevance in the instant case are as follows. Firstly what is the nature of satisfaction contemplated under section 158BD. Secondly as to whether any time limit has been prescribed, under the Act for recording such satisfaction and consequent invoking of section 158BD and, if not so provided specifically, can the same be read into the Statute by implication ? Both these issues are of relevance to decide the controversy on hand.

25. We may now examine the issue relating to time limit for initiation of proceedings under section 1158BD of the Act. As we have noted earlier under the scheme of provided for issuance of notice under section 158BD of the Act. Section 158BE, which details the time limits, is helpful only to ascertain the time limits fixed for completion of block assessment. Sub-section (2) of section 158BE provides the period of limitation for comple-tion of block assessment in the case of the "other person" referred to in section 158BD of the Act. Thus, the plea of the revenue is that a notice under section 158BD of the Act can be issued by the Assessing Officer on such other person at any stage. Referring to the case on hand it has also been specifically argued that there has been no undue delay in issuance of notice under section 158BD on 15-3-2002. It is thus contended that as there is no time limit prescribed for issuance of notice under section 158BD, thus the satisfaction contemplated under the section can be recorded without any limitation. The plea of the assessee on the other hand is that the satisfaction contemplated is to be recorded by the Assessing Officer of the searched person before completion of assessment under section 158BC, notwithstanding the absence of any specific provision in this regard. The learned counsel for the assessee has relied upon the decision of the Hon’ble Gujarat High Court in Khandubhai Vasanji Desai v. Dy. CIT [1999] 236 ITR 73 to contend that where the proceedings are initiated by issuing notice under section 158BD belatedly, the proceedings stand vitiated even though no time limit is provided for the issuance of notice under section 158BD of the Act.

25.1 On this aspect admittedly the statute does not provide a time frame by which a notice under section 158BD is to be issued by an authority to proceed against a person other than the person put under search under section 132 or requisition under section 132A of the Act. So however a situation whereby a notice under section 158BD is permissible to be issued without any time limit cannot meet with the intent and purpose of Chapter XIV-B inserted by the Legislature. Be that as it may, the specific issue, that is required to be addressed by us is in the context of the time period for recording of satisfaction anterior to issuance of notice under section 158BD of the Act. If we address the question as to what is the time limit for recording of satisfaction, in our view the answer to the said question would also result in an answer to the question as to what is the time limit for issuance of notice under section 158BD of the Act. The issue being inter-twined, we address the same together. As we have observed earlier, for making an assessment under Chapter XIV-B a search under section 132 or a requisition under section 132A of the Act is a sine qua non. Consequent to a search under section 132 or a requisition under section 132A, an Assessing Officer proceeds to frame the assessment of undisclosed income of such person under section 158BC of the Act. The definition of ‘undisclosed income’ in clause (b) of section 158B read with section 158BB enables an inference that the Assessing Officer on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as is available with him, proceeds to determine the undisclosed income in the manner prescribed under section 158BC of the Act. In the course of the assessment of the searched person, the Assessing Officer is in a position to examine and analyze the various material unearthed as a result of search and after considering the result of the relatable enquiries if any conducted by him, he forms an opinion as to what constitutes undisclosed incomes thereof. On the basis of such an exercise the Assessing Officer proceeds to finalize an assessment under Chapter XIV-B determining the undisclosed income of the person searched under section 132 or put to requisition under section 132 of the Act. It is also at this stage, the Assessing Officer upon discovering the existence of an undisclosed income is in a position to decipher as to whether such undisclosed income, belongs to the person put to search under section 132 or to requisition under section 132A or it belongs to any ‘other person’. Therefore it is only during the course of assessment of the person put to search under section 132 or requisition under section 132A that the Assessing Officer is in a position not only to detect an undisclosed income but also identify the person to whom it belongs. We have held earlier, on the basis of Manish Maheshwari’s case (supra) that the satisfaction contemplated under section 158BD is to be recorded by the "Assessing Officer" of the person put to search under section 132(1) or to requisition under section 132A of the Act. Once the assessment of such a person is finalized under section 158BC by the concerned Assessing Officer, he no longer remains the first mentioned ‘Assessing Officer’ in section 158BD of the Act. After having finalized the assessment under Chapter XIV-B he is rendered functus officio regarding the powers and functions, outlined in section 158BC read with section 158BB of the Act in relation to a person searched or in whose case requisition under section 132A is made. In other words, he can no longer be construed as an Assessing Officer for the purposes of Chapter XIV-B of the Act insofar as the person searched is concerned. Whereas the condition prescribed in section 158BD requires the recording of satisfaction by the Assessing Officer. Qua the functions stated in section 158BC read with section 158BB, the concerned Assessing Officer has already exercised his jurisdiction. His task of identifying the undisclosed income and the person to whom such income belongs, on the basis of the search material, attains finality with the completion of assessment under section 158BC of the person with respect to whom search is made under section 132 or a requisition is made under section 132A of the Act. Thus, the Assessing Officer at this point of time is expected to reach at the satisfaction contemplated under section 158BD to the effect that the search material contains an undisclosed income belonging to the person other than the person put to search under section 132 or put to requisition under section 132A.

26. We can examine this from another angle also. The authorized officer who carries out a search under section 132 or makes a requisition under section 132A is required to hand over the books of account or other documents, materials seized under section 132(1) or requisitioned under section 132A to the Assessing Officer of the person who is referred to in clause (a), (b ) or (c) of section 132(1) of the Act i.e. the person who has been put to search or a requisition under section 132A of the Act. This is the first instance where the Assessing Officer who has the jurisdiction over the person put to search under section 132 or requisition under section 132A comes into picture and he is required to make an assessment for the block period computing the undisclosed income under Chapter XIV-B of the Act. In order to frame such assessment, the said Assessing Officer is authorized, in terms of section 158BC, to issue notice to the person who has been put to search under section 132 or requisition under section 132A requiring him to furnish a return of undisclosed income for the block period as defined under Chapter XIV-B. At this stage when the said Assessing Officer proceeds to make an assessment of undisclosed income he comes in possession of the evidence and the material found as a result of search under section 132 or a requisition under section 132A and which has been handed over to him by the authorized officer. Insofar as the person put to search or requisition is concerned, the Assessing Officer proceeds to frame assessment on the strength of the presumption that the material seized belongs to the person in whose possession it was found. It is for this reason that the invoking of section 158BC is automatic in the case of a person who has been put to search or requisition. Now insofar as a person who is not put to search or requisition but is required to be subjected to the rigors of Chapter XIV-B, the mechanism is provided in section 158BD of the Act. In order to invoke the mechanism of section 158BD it is imperative that Assessing Officer is satisfied on the basis of material before him that any undisclosed income belongs to a person other than the person put to search under section 132 or requisition under section 132A of the Act. Now, we may visualize a situation whereby the evidence and material found as a result of search under section 132 or requisition under section 132A, and which is in the possession of the Assessing Officer, straightaway shows undisclosed income and also the person to whom it belongs, being a person other than the person who has been put to search under section 132 or a requisition under section 132A of the Act. At this stage itself the Assessing Officer is competent to proceed against such other person by issuing notice under section 158BD read with section 158BC of the Act after recording the requisite satisfaction. If the person so identified is not within the jurisdiction of the said Assessing Officer, then after recording the necessary satisfaction, the Assessing Officer is required to transmit books of account, other documents or assets seized or requisitioned to the Assessing Officer having jurisdiction over such "other person". Such an Assessing Officer, after receipt of the material referred above, shall proceed to issue notice under section 158BD read with section 158BC requiring such person to file return of income for the block period of undisclosed income belonging to such "other person". Now a second situation could also be visualized. In this situation, after having initiated the proceedings of assessment under Chapter XIV-B in the case of a person put to search under section 132 or a requisition under section 132A, the Assessing Officer in the course such assessment examines the material and evidence found as a result of search and makes enquiries relatable to such evidence and acquires a satisfaction that an undisclosed income belongs to a person other than the person with respect to whom search was made under section 132 or a requisition under section 132A was made. Again at this stage, the Assessing Officer is competent to proceed against such other person by issuing notice under section 158BD read with section 158BC of the Act after recording the necessary satisfaction. Similarly if the person so identified is not within the jurisdiction of the said Assessing Officer, then the Assessing Officer after recording the satisfaction proceeds to transmit books of account, other documents or seized material to the Assessing Officer having jurisdiction over such person. In the scheme of Chapter XIV-B, it is discernible that the recording of satisfaction that any undisclosed income belongs to "other person" is the point which triggers the subsequent invoking of section 158BD. In both situations, the material on the basis of which such satisfaction is to be arrived at is within the domain of the Assessing Officer of the person put to search under section 132 or to a requisition under section 132A. Therefore, logically speaking, the point of time whereby the Assessing Officer, after having examined the entire material and evidence for the purpose of making an assessment in the case of person searched, shall be in a position to satisfy himself as to whether any undisclosed income belongs to a person other than the person being assessed. Thus the date of finalization of assessment under section 158BC of the person put to search is a relevant point of time to deduce the period of limitation available with the Assessing Officer to arrive at the satisfaction contemplated under section 158BD.

27. The argument of the Department is that satisfaction can be recorded at any time and a notice under section 158BD can be issued at any time for the reason that there is no time limit prescribed. In our view the said argument is fallacious having regard to the scheme of the block assessment under Chapter XIV-B as also the objectives for which the special procedure for assessment in search cases has been brought on statute by the Finance Act, 1995. In the memorandum explaining the provisions introduced by the Finance Act, 1995 [refer to 212 ITR 345 (St.) in this connection], it is explained that under the then existing scheme of assessment of search cases, valuable time was lost in trying to relate the undisclosed incomes to different years. Tax evaders managed to divert focus to procedural and legal issues and often invent new evidence to explain undisclosed income. Legal battles contained for many years to decide which income is assessable in which year and no finality was reached and the seized assets remained with the Department for a long period of time. In order to make the procedure of assessment of search cases "cost effective, efficient and meaningful", the new Chapter XIV-B was introduced whereby procedure for assessment of undisclosed income determined as a result of search under section 132 or a requisition under section 132A was devised. With this background it clearly emerges that the Legislature intended the income-tax authorities to proceed to finalize the proceedings of assessment of search cases in an efficient and speedy manner. Can this objective be ensured if one were to infer that the satisfaction contemplated under section 158BD can be arrived at by the Assessing Officer any time, even after the completion of assessment of undisclosed income in the case of the searched person. Can there be a situation whereby a notice under section 158BD of the Act can be issued at any time ? The answer to our mind is clearly ‘no’. In fact we are conscious that the Legislature has not specifically put a time frame as to within what period of time a notice under section 158BD is required to be issued. However, in view of the aforesaid discussion it can be inferred from the Scheme of Chapter XIV-B that a limitation can be read into the Statute in this regard. The Apex Court in the case of Manish Maheshwari (supra) has explained the nature of proceedings under Chapter XIV-B. According to the Hon’ble Apex Court provisions contained in Chapter XIV-B are drastic in nature and has "draconian consequences". The implementation of such proceedings has therefore to be based on strict rules of interpretation. At this stage we may also refer to the judgment of the Hon’ble Gujarat High Court in the case of Khandubhai Vasanji Desai v. Dy. CIT [1999] 236 ITR 73 . The Hon’ble High Court of Gujarat was considering a group of petitions challenging the constitutional validity of the provisions of section 158BD of the Act. Although the period of limitation for issuance of notice under section 158BD was not specifically an issue before it, yet in the context of the constitutional vires of the section, the Hon’ble High Court was also of the opinion that a notice under section 158BD read with section 158BC cannot be an open-ended situation. In fact the Hon’ble High Court noted :

"Thus, the apprehension that a notice can be issued under section 158BD read with section 158BC by the Assessing Officer in the case of such ‘other person’ at any time is ill-founded."

Therefore, in the present context, in our view it would be in the fitness of things to conclude that the satisfaction contemplated under section 158BD is required to be recorded by the Assessing Officer of the person searched at any time but not later than the finalization of assessment of undisclosed income for the block period under Chapter XIV-B in the case of the person put to search or requisition, as the case may be. Secondly insofar as the issuance of notice under section 158BD is concerned the same is to be issued by the second mentioned Assessing Officer i.e. the Assessing Officer of the person other than the person put to search under section 132 or requisition under section 132A. That too, after transmission of the relevant material from the first mentioned Assessing Officer, i.e. the Assessing Officer of the person put to search under section 132 or requisition under section 132A. Therefore, a reasonable time lag between the date of recording of satisfaction and issuance of notice under section 158BD is envisaged in the Act itself.

28. Now the next aspect that is required to be considered is as to what is the nature of satisfaction that is contemplated under section 158BD of the Act. A bare reading of the section 158BD clearly shows that the such provisions can be invoked only in a situation where the Assessing Officer is satisfied that any undisclosed income belongs to a person other than the person with respect to whom search under section 132 or a requisition under section 132A has been made. The satisfaction so contemplated, as the bare provision itself shows, has to be formed on the basis of the books of account or other documents or any assets which have been subject to requisition under section 132A of the Act or material seized as a result of search under section 132 of the Act. The material before the Assessing Officer must throw up an undisclosed income and must also enable him to conclude that such undisclosed income belongs to a person other than the person with respect to whom search under section 132 or requisition under section 132A has been made. The satisfaction so contemplated under section 158BD, being a jurisdictional aspect is required to be objectively arrived at by the assessing authority. The satisfaction contem-plated is not merely a subjective satisfaction but is required to be based on the material seized under section 132 or requisitioned under section 132A of the Act. The Assessing Officer is required to sift, examine, analyse and investigate the material before him and only on the basis of the result thereon a satisfaction has to be recorded that any undisclosed income belongs to any person other than the person with respect to whom search under section 132 or a requisition under section 132A of the Act is made. This aspect finds support from the reasoning enunciated by the Hon’ble Delhi High Court in the case of Amity Hotels (P.) Ltd. (supra) wherein it has been held that satisfaction is required to be preceded by necessary investigations and not that the investigation are required to be preceded recording of satisfaction. The nature of the satisfaction contemplated under section 158BD therefore is of a level much higher than what an Assessing Officer acquires in order to invoke section 147/148 of the Act. The satisfaction, in our view, must be based on some positive material which has been found during the course of search or a requisition under section 132A of the Act. Unless such material is identified and brought on record by the Assessing Officer and forms the basis of his satisfaction, a mere formality of arriving at satisfaction contemplated under section 158BD would not justify the assumption of jurisdiction by the Assessing Officer to issue notice under section 158BD. The reasons for our aforesaid view are not far to seek. Such satisfaction of the Assessing Officer enables the revenue to rope in a person who is a stranger to the search under section 132 or a requisition under section 132A within the domain of the draconian provisions of Chapter XIV-B of the Act. The ‘other person’ comes into picture only by virtue of satisfaction of the Assessing Officer and therefore the same has to be strictly interpreted. It is in this context we are of the view that the powers of the Assessing Officer under section 158BD cannot be invoked in a light-hearted cursory manner. The recording of satisfaction is not an empty formality but is to be viewed as a legal compulsion based on the material available till such date. It should be a positive satisfaction to the effect that the material before the Assessing Officer reveals an undisclosed income of the person other than the person put to search under section 132(1) or requisition under section 132A. It is, therefore, of utmost importance that the validity and the authenticity of the seized material must be ensured by the Assessing Officer before deducing therefrom that it depicts undisclosed income belonging to such other person. The objectivity of such proceedings, to be carried out by the Assessing Officer, cannot be over emphasized inasmuch as the same are justifiable in the Courts. Needless to say the action of the Assessing Officer is open to challenge by the assessee in the court of law and therefore unless the satisfaction is arrived at, by the Assessing Officer, on the basis of material before him, such satisfaction cannot be assumed. Any viola-tion or infirmity in the recording of satisfaction or non-adhering to the pre-requisites contained in section 158BD is an illegality which would vitiate the entire consequential proceedings. This clearly emerges from the reading of the judgment of the Apex Court in the case of Manish Maheshwari ( supra).

29. Now with the aforesaid background we come back to the facts of the instant case. Certain important dates which are of relevance are as follows. A search under section 132(1) was carried out in the case of the ‘dalal’ on 14-9-1999. A notice under section 158BC was issued to ‘dalal’ requiring him to file return of income declaring undisclosed income for the block period on 5-5-2000. The assessment under section 158BC was finalized by the Assessing Officer on 21-5-2001. Subsequently in the case of the assessee before us a notice under section 158BD was issued on 15-3-2002 calling upon the assessee to file return of income of undisclosed income for the block period. The first plea of the assessee is that the satisfaction purported to have been recorded on 15-3-2002 before issuance of notice under section 158BD is invalid for the reason that the same has been recorded belatedly. Secondly that such satisfaction was required to be recorded by the Assessing Officer in the case of ‘dalal’ and not in the case of the assessee per se. The stand of the revenue, on the contrary, is that the assessing authority who has framed the assessment in the case of the ‘dalal’ as also in the case of the assessee is same i.e. ACIT (Investigation Circle) Yamuna Nagar and therefore there was no necessity of recording satisfaction.

30. We are unable to accept the aforesaid contention advanced on behalf of the revenue. We have already noted earlier that requirement of recording of satisfaction that undisclosed income belongs to a person other than the person put to search or requisition is a pre-requisite for invoking section 158BD of the Act. Such satisfaction has to be recorded by the Assessing Officer of the person with respect to whom search under section 132 or a requisition under section 132A has been made. Clearly in this case, the satisfaction dated 15-3-2002 has not been recorded by the Assessing Officer of the person with respect to whom search under section 132 has been carried out. The plea regarding the common Assessing Officer also in our view does not dilute the requirements of section 158BD with respect to recording of satisfaction. No doubt the provisions of section 158BD are silent in a case where the Assessing Officer of the person put to search under section 132 or requisition under section 132A is the same as that of a person who has been identified by the Assessing Officer of the first mentioned person as a person to whom the undisclosed income belongs. Even if it is accepted that the Assessing Officer is same, in the instant case, then the satisfaction ought to have been recorded not later than the date of finalization of assessment under section 158BC in the case of ‘dalal’ i.e. 21-5-2001 and on this count, the satisfaction recorded on 15-3-2002 is belated. In this connection the assessee has further contested the claim of the Department that assessing authority of two persons was same at the relevant point of time. The learned counsel pointed out with reference to the material brought on record by the Department that jurisdiction of ‘dalal’ was with ACIT, Yamuna Nagar whereas the assessee was being assessed by ITO, Yamuna Nagar as on 21-5-2001. We have been provided by the learned DR with an order dated 13-12-2001 issued by Joint Commissioner of Income-tax, Yamuna Nagar Range, Yamuna Nagar in exercise of powers conferred by sub-sections (1), (2) and (3) of section 120 read with the relevant notification which permits ACIT, Yamuna Nagar to exercise jurisdiction and perform functions of Assessing Officer in respect of persons mentioned in the Annexure to the said order. This list contains 133 names and it is claimed by the revenue that the name of the assessee appears at Sr. No. 30 which is an entry, which reads as under:—

31. It is further made clear in this order that it takes effect from 13-12-2001. Factually speaking we are satisfied that the ACIT, Yamuna Nagar acquired jurisdiction to act as an Assessing Officer in the case of the assessee only with effect from 13-12-2001. With this background now we may proceed to consider as to whether the satisfaction note dated 15-3-2002 recorded by ACIT, Yamuna Nagar can be said to be the satisfaction as contemplated under section 158BD of the Act.

32.Firstly the said satisfaction is much after the date of assessment of undisclosed income in the case of the person searched i.e. ‘dalal’ and hence the same is belated. Such assessment has been completed on 21-5-2001 whereas this satisfaction has been recorded on 15-3-2002. Moreover on 15-3-2002. The ACIT, Yamuna Nagar could not be construed to be acting as an Assessing Officer of the person searched, i.e. ‘dalal’ qua the recording of satisfaction is the assessment in the case of ‘dalal’ had been computed on an anterior date. On this count also we are of the opinion that the said satisfaction note does not comply with the requirements of section 158BD of the Act.

32.1 At this stage we may also refer to the arguments made by learned DR that the earlier Assessing Officer of the assessee namely I.T.O., Ward-1, Yamuna Nagar could not be construed as an Assessing Officer to whom the search material could be transmitted as he was not competent to make the block assessment in terms of section 158BG of the Act. The plea of the revenue is that having regard to the provisions of section 158BG, on 21-5-2001, as there was no Assessing Officer to whom the satisfaction contemplated under section 158BD and the search material could be transmitted and as that the Assessing Officer himself (being an Assistant Commissioner) was only competent to act as Assessing Officer of the ‘other person’ i.e. the assessee and thus, the requirements of section 158BD stood complied by itself. The said plea of the revenue, in our view deserves to be rejected at the threshold itself. Section 158BG only provides the authorities competent to make block assessment. It seeks to provide that the order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner or a Dy. Commissioner, as the case may be. The said section does not invest the authorities mentioned therein with jurisdiction over a person, which is dealt with by separate provisions but merely identifies the authorities competent to pass a block assessment order. In this context we are of the view that the Assessing Officer of ‘dalal’ after recording satisfaction contemplated under section 158BD within the period of limitation ought to have transmitted such satisfaction along with the search material to then existing Assessing Officer of the assessee i.e. I.T.O. Ward-1, Yamuna Nagar. The mechanics of section 158BD are governed by the provisions contained therein and section 158BG only comes into play only when the order of assessment is required to be made in the case of a person covered under Chapter XIV-B of the Act. Therefore, the inference of the revenue that the assessing authority in the case of the assessee is to be understood as ACIT, Yamuna Nagar automatically is not justified. If it were to be so, then there is no rationale for the order dated 13-12-2001 (supra) issued by the competent income-tax authority whereby the ACIT, Yamuna Nagar has been authorized to exercise jurisdiction and perform the functions of an Assessing Officer under Chapter XIV-B of the Act with respect to the assessee. Ostensibly, the said order is governed by the statutory provisions provided in Chapter XIII-A and XIII-B of the Act. Thus, the revenue is not justified to argue that there was no Assessing Officer to whom the satisfaction along with the search material could be transmitted in terms of section 158BD and that the jurisdiction over the assessee under Chapter XIV-B automatically vested with the ACIT, Yamuna Nagar, i.e. Assessing Officer of ‘dalal’. Thus the said plea does not help in the case of the revenue that the requirements of section 158BD stood complied. On the basis of the foregoing, we hold that the satisfaction note dated 15-3-2002, does not comply with the requirement of section 158BD of the Act.

33. In the face of the aforesaid, the learned DR made a spirited defence of the revenue’s case in the following manner. According to the learned DR while finalizing the assessment under section 158BC on 21-5-2001 in the case of the person searched i.e. ‘dalal’, the assessing authority therein i.e. DCIT (Investigation Circle), Yamuna Nagar appended an office note. Such office note, specially para 5 thereof, according to her tantamounts to recording of satisfaction as contemplated under section 158BD of the Act. Para 5 of the note is reproduced hereinafter :

"During the course of search at the residence of the assessee a ledger marked as A-1 was seized. This ledger contains the details of money lending business done through the assessee. The ledger has been maintained lenderwise. This document contains the names of the lenders and borrowers, date and rate of interest. The assessee was asked to furnish the names and addresses of all the persons/concerns mentioned in the ledger which were duly furnished by the assessee. This ledger contains inter alia, three accounts in the names of Anuradha, Prince and Santosh. The assessee stated that these accounts belonged to Shri Nand Lal Garg, C/o M/s. Kumar Steels, Jagadhri. Shri Nand Lal Garg was confronted with this information. In reply to this Shri Nand Lal Garg and his sons S/Shri Luxmi Narain Garg, Surinder Kumar Garg and Vajinder Kumar Garg in their individual as well as in the capacity of karta of HUFs have denied having ever lent or borrowed any money through the assessee (Shri Anil Dalal) and have also denied any connection or involvement with him.

The issue of entries depicting advancing of loans by various persons as figuring in A-1/and other related documents has been examined in detail. On the basis of details, almost all the persons and concerns are identifiable except in the case of three accounts mentioned above. No real names relating to the family of Shri Nand Lal Garg and his sons could be identified and discovered. Therefore, cognizance of these entries on protective basis has been taken in the case of the assessee keeping in view the fact that block search assessment of Shri Nand Lal Garg and his sons are pending with Hon’ble Settlement Commission.

As regards entries of other persons and concerns no adverse inference is taken in the case of the assessee as these persons are identifiable. Moreover, in view of the fact that Shri Anil Kumar Goyal was a broker in the money lending business and document marked as ‘A-1’ has been maintained by him in the regular and normal course of business.

Therefore, due cognizance is being taken separately in the case of lenders by initiating proceedings under Chapter XIV-B of the Income-tax Act, 1961."

34. We have examined the above contention raised on behalf of the revenue. A perusal of the aforesaid note shows that there is no averment or a finding by the Assessing Officer that the transactions which have been explained by the ‘dalal’ as belonging to certain persons are undisclosed transactions in the hands of the respective parties. Evidently there is nothing on record to show that any verification exercise was carried out by the assessing authority before recording the aforesaid satisfaction for the purpose of section 158BD. The only observation of the Assessing Officer is that the persons and concerns explained by ‘dalal’ are identifiable. The mere identity of the parties recorded in Annexure A-1 by itself does not imbibe those transactions with the nature of undisclosed since there is no collateral finding that the respective parties have not accounted for such transactions in their books of account. It has been vehemently canvassed that subsequently the ACIT, Yamuna Nagar by way of his communication dated 28-12-2001 has confronted the said entries to the assessee in response to which the assessee, by way of his communication dated 7-1-2002 has denied the said entries. It is further contended by the Revenue that the requisite verification exercise has been carried out by the Assessing Officer before issuance of notice under section 158BD of the Act on 15-3-2002. Be that as it may, it is sufficient for us to deduce here that in order to arrive at the satisfaction contemplated under section 158BD in this case the necessary investigation and culling out of the facts and information was required to precede the recording of the satisfaction on 21-5-2001. The material and information which came to the knowledge of the Assessing Officer subsequent to the date of recording of satisfaction i.e. 21-5-2001 is not relevant to decide the validity of the satisfaction recorded on an anterior date. After examining the aforesaid note dated 21-5-2001 and the submissions of the learned DR, we do not find any satisfaction emerging "that any undisclosed income belongs" to a person other than the person in respect of whom search was made. Neither is there any identification of any undisclosed income or transaction and nor is there identification of the ‘other person’ contemplated under section 158BD. Notwithstanding the aforesaid, we are also satisfied that on the basis of material available with the Assessing Officer of ‘dalal’ as on the date of said note, it could not be deduced that the transactions in Annexure A-1 reflected undisclosed income of the assessee so as to justify the invoking of section 158BD of the Act. The quality of evidence available with the Assessing Officer does not justify any satisfaction regarding existence of the undisclosed income or even the identification of such other person contemplated under section 158BD. The only basis was the statement of ‘dalal’ and no further. On an overall consideration of the material on record, we are satisfied that the office note dated 21-5-2001, although is within the period of limitation, however the same cannot be considered as a valid satisfaction contemplated under section 158BD of the Act. In fact it has been vehemently argued by the learned DR that Annexure A-1 and the subsequent statement of ‘dalal’ have been put to verification regarding the transactions of lending of certain parties other than the assessee which have taken place through banking channels. It is thus submitted that Annexure A-1 was authentic and reflected true state of affairs. This aspect can at best provide a reason to the revenue to probe further and make deeper investigations to arrive at the true state of affairs. However, the same by itself cannot be enough to deduce that the transactions which are explained by ‘dalal’ construe undisclosed income of the other person contemplated under section 158BD i.e. the assessee before us. We, therefore, conclude that the aforesaid note does not fall within the parameters of section 158BD regarding recording of satisfaction. This vitiates the assumption of jurisdiction by the Assessing Officer by issue of notice under section 158BD of the Act dated 15-3-2002.

35. In addition to the above, we may also refer to the notice issued under section 158BD of the Act to the assessee which reads as under :

"Notice under section 158BC read with section 158BD of the Income-tax Act.

PAN NO.

To,

M/s. Dasondhi Ram Kishan Chand

Pansari Bazar,

Jagadhri

In pursuance of the provisions of section 158BC read with section 158BD of the Income-tax Act, 1961, you are required to prepare a true and correct return of your total income including the undisclosed income in respect of which you as individual/Firm/HUF are assessable for the block period ended as on 14-9-1999, mentioned in section 158B(a) of the Income-tax Act, 1961.

The return should be in the prescribed Form No. 2B and be delivered in this office within 30 days of service of this notice, duly verified and signed in accordance with the provisions of section 140 of the Act.

In this context we may refer to the judgment of Apex Court in the case of Manish Maheshwari ( supra). In the said case the Hon’ble Supreme Court was dealing with the validity of a notice issued under section 158BD of the Act. The Hon’ble Supreme Court has reproduced in its order the notice issued under section 158BD. After reproducing the notice the Hon’ble Apex Court noted various infirmities and observed that there was "patent non-application of mind. A prescribed form has been utilized. Even the status of the assessee had not been specified". The Hon’ble Supreme Court further observed that the notice did not contain any other information regarding the search. Such a notice, according to the Supreme Court, does not meet with the requirements of section 158BD.

36. We have carefully perused the notice under section 158BD issued in the instant case in the context of the infirmities which were the subject-matter of consideration by the Hon’ble Supreme Court. We find that herein also the notice has been issued in a mechanical manner and does not even specify the status of the assessee and a standard form has been utilized. In the instant case there is not even a reference to the search under section 132 in connection with which the said notice has been purportedly issued. In the case before the Hon’ble Supreme Court it was specifically observed that the notice contained a reference to the concerned search conducted. What we are trying to bring out is that the infirmities and shortcomings that have been noticed by the Hon’ble Supreme Court in the notice issued under section 158BD are also very much prevalent in the notice issued under section 158BD in the instant case.

37. We may also make an observation regarding the ambivalent and casual manner in which notice under section 158BD has been issued in the instant case. As noted earlier the jurisdiction permitting the ACIT, Yamuna Nagar to exercise jurisdiction and perform functions of Assessing Officer in regard to the assessee was by way of an order dated 13-12-2001. This order is common order containing 133 names wherein Item No. 30 has been explained as that of the assessee. We have also reproduced the said entry at para 29 of our order elsewhere. The status of the assessee is mentioned therein as a ‘firm’ whereas admittedly the assessee in question is an ‘individual’ who has a proprietory concern by the name of M/s. Dasondhi Ram Kishan Chand. Coupled with the fact that the notice under section 158BD dated 15-3-2002 does not even specify the status of the assessee, it only shows a casual approach in which the jurisdiction under section 158BD has been sought to be assumed. Therefore, on the parity of reasoning which prevailed with the Hon’ble Supreme Court, we find it expedient to hold in the instant case that the impugned notice does not comply with the requirement of section 158BD of the Act. Thus proceedings initiated thereupon stand vitiated.

38. Considering the entire facts and on the basis of the aforesaid discussion, we are of the opinion that the assumption of jurisdiction by the Assessing Officer by issuance of notice under section 158BD dated 15-3-2002 is vitiated in law. As we have noted earlier the invoking of section 158BD is a jurisdictional aspect and its validity is critical to justify the subsequent proceedings. In fact the Hon’ble Supreme Court in the case of Arun Kumar v. Union of India [2006] 286 ITR 89 in the context of jurisdictional fact opined as follows :

"A ‘jurisdictional fact’ is a fact which must exist before a court, Tribunal or an authority assumes jurisdiction over a particular matter. A jurisdictional fact is one on the existence or non-existence of which depends the jurisdiction of a court, a Tribunal or an authority. It is the fact upon which an administrative agency’s power to act depends. If the jurisdictional fact does not exist, the court, authority or officer cannot act. If a court or authority wrongly assumes the existence of such facts, the order can be questioned by a writ of certiorari. The underlying principle is that by erroneously assuming the existence of such jurisdictional fact, no authority can confer upon itself jurisdiction which it otherwise does not possess. The existence of the jurisdictional fact is thus the sine qua non or condition precedent for the exercise of power by a court of limited jurisdiction.

If the jurisdictional fact exists, the authority can proceed with the case and take an appropriate decision in accordance with law. Once the authority has jurisdiction in the matter on existence of the ‘jurisdictional fact’, it can decide the ‘fact in issue’ or ‘adjudicatory fact’. A wrong decision on a ‘fact in issue’ or an ‘adjudicatory fact’ would not make the decision of the authority without jurisdiction or vulnerable provided the essential or fundamental fact as to existence of jurisdiction is present."

39. Considered in the aforesaid context, as we have already deduced in the present case that the invoking of section 158BD is vitiated, we therefore are of the opinion that the subsequent assessment framed by the Assessing Officer vide order dated 19-3-2004 under section 158BD read with section 158BC is liable to be quashed as lacking in jurisdiction. We hold so.

40. Since the assessment stands quashed, the dispute regarding the addition made thereon thus, is rendered academic in nature. So however, rival parties have made submissions even with regard to the merits of the addition. In order to ensure completeness and in deference to the views of the parties, we proceed to evaluate the efficacy of the addition made by the Assessing Officer. The rival contentions in this regard have already been noted by us in the earlier paragraphs.

41. To recapitulate, a red bahi was seized on 14-9-1999 in the course of search on the Dalal which is referred to as Annexure A-1. This Annexure is in the form of a Diary containing amounts and names in abbreviated forms of digits and initials. The investigation conducted by the Revenue to demystify and comprehend the entries in the said Diary revealed that certain parties, including the assessee in question, had indulged in money lending transaction in cash, through ‘dalal’ claiming to be the broker. The manner in which the result of the investigations has been used by the Assessing Officer to make the addition has already been noted by us in the earlier portion of our order and the same is not being repeated for the sake of brevity. It is sufficient to note here that the inference drawn by the Assessing Officer is to the effect that the assessee has indulged in money lending in cash outside the books of account. Accordingly the investment made in the shape of monies deployed for such lending has been treated as unexplained investment assessable under section 69 of the Act. The interest earned on such investment has also been assessed on the estimate basis. The sole basis for making the addition is the statement of Dalal. It is only on the basis of the statement of Dalal that the entries in the Annexure have been comprehended. The names and addresses of the parties have also been given by Dalal.

42. In the above context we may now come to the crux of the issue - whether on the basis of the material before the Assessing Officer, could it be inferred that the assessee had indulged in money lending transactions outside the books of account. The revenue has inferred so on the basis of the Annexure A-1 read along with the statement of Dalal. We may appreciate such evidence in the following words. The entries of amounts and names recorded in Annexure A-1 are incomprehensible and vague. As regard the amounts recorded therein, we find that some figures have been briefly put against the respective names and such figures do not carry any prefix of a symbol , volume or unit so as to understand whether the same are in thousands, lacs or any other denomination. The names of the parties are recorded in abbreviated form, short names, caste name, etc. The entries do not indicate the nature of transaction undertaken. Certain dates are also entered in the Annexure A-1 against the amounts or names but not in any chronological or intelligible manner. There are cuttings and over-writings also in the Annexure A-1. The entire edifice of the Revenue is built on the Annexure A-1, in fact on the entries made therein, which has been seized from Dalal and therefore it is incumbent to examine the truthfulness and reliability of such evidence. It is an established position that the Annexure A-1 is in the handwriting of ‘dalal’. Looking at the manner in which the Diary (i.e. Annexure A-1) has been maintained, it is safe to deduce that the entries recorded therein are only within the exclusive knowledge of its scribe as to what and to whom do they pertain. Therefore, before such an evidence is considered to fasten any tax liability on third party, i.e. the assessee before us, it becomes imperative to ensure its authenticity and correctness. According to the Revenue, the said Diary (Annexure A-1) has been maintained in the regular course of business by ‘dalal’ and can be equated to a book of account. Since it has been recovered during a search under section 132(1) of the Act, its contents carry the presumption under section 132(4A) and are to be taken as true and correct.

43. In our considered view the impugned evidence is not sufficient to charge the assessee with any tax liability. The test of regularity of recording of transactions cannot by itself be a guarantee regarding its correctness and trustworthiness. The probative value of such evidence is to be tested on the basis of an independent and corroborative evidence. The entries in the Diary, cannot be taken as correct and authentic without any corroborative evidence. The plea of the Revenue is that the entries in the Annexure which pertained to the transaction carried out through banking channels have been put to verifications and stand admitted by the respective parties. This aspect is stated to be a corroborative evidence regarding the correctness of the contents of the said Annexure. In our view, the verifiability and subsequent confirmation of the bank transactions, can at best be viewed as proof of reliability of such entries alone and not to the other entries in the said Annexure. Moreover, this evidence does not corroborate the entries against the assessee. This is for the reason that factually it is admitted by the Revenue that none of the bank entries pertain to the assessee in question. Therefore, the evidence regarding the verifiability of bank entries do not corroborate Annexure A-1 against the assessee.

44. Now, regarding the presumption available to the Revenue under section 132(4A). It is urged that it being a settled principle of law, Annexure A-1 along with the statements of the Dalal can be taken as true. Section 132(4A) of the Act provides that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are found in the possession or control of any person in the course of a search, it may be presumed that such material belongs to such person and the contents thereof are true and correct. It is also a settled principle that such presumption is rebuttable. Viewed in this background, Annexure A-1 seized in the course of search from Dalal enables the Revenue to presume that its contents are true. So however, such presumption is available only against the person to whom it belongs, i.e., against ‘dalal’ and is a rebuttable presumption. The subsequent statements of Dalal, specially the statement dated 20-1-2000 has to be understood in the said light. Be that as it may, it is sufficient for us to notice that when this statement of ‘Dalal’ is to be used against the assessee before us, it does not carry the strength of presumption envisaged under section 132(4A) regarding its truthfulness. Therefore, our observation in the earlier paragraph that the evidence in the shape of Annexure A-1 along with the statement of Dalal is admissible against the assessee only if it is supported by a corroborative evidence. Ostensibly there is no such evidence available with the Revenue which can establish that the entries in the Annexure A-1 represent honest and real transaction; so as to inform that the assessee actually transacted in money lending as per the entries recorded in Annexure A-1.

45. Another reason for us to highlight the importance of corroborative evidence is the fact that the impugned Annexure A-1 could not be understood without the help of Dalal for it contained entries which were meaningful only to him. Therefore, the statement tendered by the Dalal regarding the entries which seek to implicate a third party i.e., the assessee, is required to be supported by an independent and corroborative evidence.

At this stage we refer to the argument of the Ld. D.R. based on the decision of the Hon’ble Punjab & Haryana High Court in the case of R.P. Vashisht (supra). It is submitted that since the Annexure was found in the course of search it cannot be presumed that Dalal would have recorded the transaction in the name of the assessee for no rhyme or reason. Therefore, the entries made in such diary are presumed to be correct unless otherwise proved. We have carefully perused the above decision of the Hon’ble Punjab & Haryana High Court. The facts of the case were that an assessee ‘S’ was searched whereby certain loose slips were found relating to expenditure incurred by him for renovation of his ancestral house. The explanation of the assessee regarding the source to meet the expenditure was rejected. Addition was made, taking into account payments made by one ‘L’ from whom a cash book was seized during a search showing payments to the assessee ‘S’. The Tribunal upheld the addition noticing that the cash-book seized from ‘L’ showed illegal payments to the assessee ‘S’. The Tribunal held that the contents of cash book seized during search from ‘L’ can be presumed to be correct. The aforesaid conclusion of the Tribunal has been approved by the Hon’ble Punjab & Haryana High Court. The above reasoning, in our view, does not help the case of the Revenue in the instant case. Rather, it supports the case of the assessee and the proposition that a material can be used against the assessee only if it is corroborated by independent evidence. In the case before the Hon’ble High Court the addition was based on the basis of loose slips found from the assessee. The slips found showed incurring of an expen- diture and the explanation rendered regarding the source of funds, was rejected by the revenue. The stand of the Assessing Officer was corroborated by the material found during the search of a third party. Such material showed payments to assessee for illegal gratification. This corroborative evidence supported the case of the Revenue against the assessee and it was in this context the observation of the Tribunal that the material seized from a third person during the search is presumed to be correct and such observations have been thereafter approved by the Hon’ble High Court. Now insofar as the instant case is concerned, first of all nothing incriminating has been either found or seized from the assessee. The evidence and material in question belongs to and is found from a third person namely ‘dalal’. There is nothing to corroborate the contents of the same. As the facts show, in the instant case the situation stands on a totally different footing than it was in the case before the Hon’ble High Court. In the instant case there is no material to corroborate the stand of the Assessing Officer against the assessee. Therefore, in our view the parity of reasoning which prevailed in the case of R.P. Vashisht (supra) cannot be applied in the present case.

46. Two specific evidences have been used by the revenue. First is the Diary (i.e. Annexure A-1) and second is the statement of Dalal, the scribe of the Diary. Insofar as the Annexure A-1 is concerned, the entries recorded therein do not, by itself, convey any meaning to any person other than the scribe himself. Therefore the only specific evidence i.e. meaningful and which requires scrutiny is in the shape of the statements of Dalal. This evidence is alone required to be scrutinized and evaluated as to whether it supports the inference drawn by the Assessing Officer that the assessee has indulged in transactions of money lending outside the books of account.

47. In this background we have scrutinized and examined the statements of the Dalal recorded by the Investigation Wing. Much has been argued by the rival representatives with regard to the veracity and admissibility of the statement given by Dalal. The Investigation Wing of the department through DDIT, Ambala has recorded statements of ‘Dalal’ on various dates viz. 14-9-1999, 30-9-1999, 2-11-1999, 4-11-1999 and 20-1-2000. The assessee has contended that the statement of ‘Dalal’ is unreliable and does not carry any evidentiary value. The revenue, on the other hand, has defended the authenticity and reliability of the statement tendered by Dalal. We have perused the statements which have been placed in the respective Paper-books filed by the assessee and revenue. We may briefly notice as under. In the statement recorded on 14-9-1999 on the day of search it is stated by Dalal that he does broking business of many items like foodgrains, steel, cloth etc. Regarding the finance broking, he stated that he undertakes the same if he gets such a job. In another statement recorded on the same day he reiterated doing broking of many items such as metal, foodgrain, etc. Again with regard the finance broking, he stated that he was doing so only some time. In the statement recorded on 30-9-1999, he explained the Annexure A-1 as a ledger maintained to workout his commission income. He further stated that this ledger was maintained by him in the same year i.e. 1999-2000 and no such ledger/diary was maintained in the past. He further stated that there was no fixed rate of commission and he esti-mated his income on the basis of the amount spent on household expenses which ranged from Rs. 3,500 per month to Rs. 5,000 per month). He also stated that he did not stand guarantee or surety for the transactions undertaken by the parties. To a specific query regarding an entry against the name of ‘Sham Lal & Brothers’ in the diary, who is also an assessee before us, he stated that he could not identify as to which party was the borrower and which party was the lender. He further explained that the parties who borrowed and lent money used to transact amongst themselves and that he was not involved in the actual transaction of money. Again with regard to certain parties identified by the DDIT, whose names appeared in the Annexure A-1, he denied knowledge about their addresses. In a subsequent statement recorded on 2-11-1999 he explained that he used to earn brokerage for arranging a meeting of the parties. On 4-11-1999, his statement was again recorded. He was asked to explain the entries in Annexure A-1 and confirm whether the same were in a coded form. In reply he stated that whatever entries are there, it pertained to his Dalali income and no code has been used. The entries written are only rough calculations. Similarly in the statement recorded subsequently, he replied that he had never advanced any money himself and that the transaction was done by the parties themselves. He further stated that he used to write his commission in the ledger (Annexure A-1) and recorded the names of the lender and borrower as told by the concerned parties. We may now refer to the most significant statement of Dalal recorded on 20-1-2000. During this examination conducted by DDIT, Ambala he has given a long list of names running into 40-45 pages. He has identified the parties in the Annexure A-1 and provided the complete details, viz. names, addresses of the lenders, borrowers and the amounts transacted, etc. A significant aspect of the said statement is that he again confirmed that he was not involved in the actual transaction of money. For not having rendered the aforesaid explanation during previous occasions, he stated that after perusing the photocopies of Annexure A-1 he recalled the names of the parties. Further, ‘Dalal’ was also examined by the Assessing Officer in the course of the impugned assessment of the assessee and a copy of such statement has been placed at pages 161 to 163 of the Paper-book filed by the Revenue. We have also perused the same. It emerges from the examination of such statement that according to Dalal the assessee had indulged in money lending activity outside the books of account and claimed to have recorded so in the Annexure A-1. On being questioned for proof, he stated that he has no documentary or other evidence to support his statement. The position taken by Dalal in the statement recorded by DDIT on 20-1-2000 and before the Assessing Officer in the course of impugned assessment proceedings is by and large consistent. On both the occasions Dalal has claimed that assessee has undertaken money lending dealings in cash. However on both the occasions it also emerges that he admitted or not having actually witnessed the money lending. In fact he has confirmed on the both the occasions that neither the money was exchanged through him and nor was he a witness to the exchange of money. He categorically confirmed that the money was transacted by the parties amongst themselves without his knowledge. He claimed that his role was merely to bring together the party in need of money with the party who was willing to lend.

48. From the aforesaid it emerges that the said evidence does not justify an inference that any transactions in cash have indeed taken place. Firstly, the parties (i.e., the lender and borrower) named by Dalal have denied having undertaken any such transactions. Secondly Dalal himself also does not admit of having either witnessed the cash transaction or of having transacted it himself. In the face of this, it cannot be established that the transactions as narrated by ‘Dalal’ ever took place. In the absence of any such evidence, the correctness of entries in Annexure A-1 cannot be established. After all the entries in the Annexure A-1 can be considered as corroborated only once the direct evidence of the person who is said to have made the payments or the direct evidence of a person who is said to have witnessed the exchange of payment is available on record. As the position stands before us there is no such evidence on record. Thus, there is no material on the basis of which it can be said that transaction in cash have been entered into by the assessee as recorded in the Annexure A-1. We, therefore are satisfied that the material and evidence brought on record by the Revenue is not sufficient to conclude that the assessee had indulged in money lending transactions in cash outside the books of account.

49. Further, in reply to another question, during cross examination done during the impugned assessment proceedings (refer page 162 of the Paper book filed by the Revenue) ‘Dalal’ stated that the name of the parties in Annexure A-1 are written by him as told by the parties who indulged in money lending. This also supports the inference that the recording in Annexure A-1 are not on the basis of the first hand knowledge of Dalal. In other words, it can be safely deduced that the charge made out by ‘Dalal’ against the assessee is not on the basis of his personal knowledge. Under these circumstances we feel that the evidence brought on record by the Revenue does not carry its case any further. The evidence in question is not amenable to be taken as true and correct to implicate the assessee with any tax liability under Chapter XIV-B of the Act.

50. Much has been argued by the either parties regarding the manner of maintaining of Annexure A-1 by Dalal. The Revenue has contended that the said Annexure was maintained in the shape of a ledger and as a record of broking transactions and is maintained in the regular course of business and can be equated to be a book of account. The assessee contends that the said Diary cannot be equated to a book of account of any business. We do not find it necessary to go into this controversy as it does not help much to decide the question on hand. What is of relevance is to decide the evidentiary value and correctness of the Annexure, which we have already addressed in the earlier paragraphs. Similarly much has been argued by the either parties on the decision of the Hon’ble Supreme Court in the case of V.C. Shukla (supra). The assessee has attempted to draw support from it and CIT(Appeals) has also relied on it whereas according to the Revenue, the said decision is inapplicable to the facts of the present case. We have carefully perused the said decision. The Hon’ble Supreme Court was dealing with the case of the prosecution against various persons under sections 7 and 12 of the Prevention of Corruption Act, 1998 and section 56 read with section 8 of the Foreign Exchange Regulation Act, 1973. The allegation of the prosecution was that Jains entered into a criminal conspiracy amongst themselves, the object of which was to receive unaccounted money and to disburse the same to various persons, including V.C. Shukla and others. In pursuance of the said conspiracy Jain lobbied with various public servants to persuade them to award contracts to different foreign bidders with the motive of getting illegal kickbacks from them. An account of such receipts and payments was maintained by Jain in the diaries and files which were recovered during the course of a search by CBI. The issue was as to whether the entries in the diaries and files was an admissible evidence under sections 34, 10 and 17 of the Evidence Act, 1872. The decision of the Hon’ble Supreme Court hinges on the provisions of section 34 of the Evidence Act, 1872. Section 34 of the Evidence Act deals with the relevance of the entries in the books of account. It provides that the entries in the books of account, "regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability". On facts, the diaries seized were held to be admissible as evidence under section 34 of the Evidence Act, 1872. However the Supreme Court noted that the truthfulness of the entries in the diaries was not proved by any independent evidence. Hence it was held that the prosecution could not prove its case. In this context the Hon’ble Supreme Court examined the expressions "books of account", "course of business", and "regularly kept" as appearing in section 34 of the Evidence Act, 1872. The above discussion is sufficient to deduce that the reasoning adumbrated in the said decision is only in the context of the wordings of the relevant sections of the Prevention of Corruption Act, 1988. Ostensibly such reasoning cannot be imported into the income-tax proceedings. It is a quite well settled proposition that the strict rules of evidence are not applicable to the income-tax proceedings. So therefore the principles laid down in the case of V.C. Shukla (supra) do not help in resolving the controversy before us. The principle that we have found useful to resolve the controversy before us has been discussed by us in elsewhere in our order.

51. We may also refer to the manner in which the evidence in the shape of Annexure A-1 has been considered by the assessing authority of ‘dalal’ from whose possession such evidence has been seized in the course of assessment finalized under section 158BC of the Act. We may also mention here that initially the order under section 158BC was passed by ACIT, Yamuna Nagar in the case of ‘Dalal’ on 21-5-2001 which was reviewed by the CIT under section 263 vide order dated 31-12-2003 and was quashed. Subsequently the assessment under section 158BC read with section 263 of the Act has been finalized by ACIT, Yamuna Nagar on 31-3-2004. We have perused both the assessments and find no dis-similarity in the two. Annexure A-1 has been accepted by the Assessing Officer as explained by ‘Dalal’, which we have already narrated in the earlier portion of our order. In the course of such assessment proceedings, the Assessing Officer, by way of office note No. 4 recorded as under :

"The assessee has shown its receipts from Dalali business at Rs. 42,115 and Rs. 32,720 for the assessment years 1999-2k and 2000-01 respectively. The assessee was confronted with figures of Dalali is estimated by the DDIT (Inv.), Ambala from D. No. The assessee has given the complete detail of dalali received by him as per this document. No adverse congnizance is drawn in view of the fact that most of the persons have denied having paid any dalali to the assessee. Moreover, brokerage was being received from the borrowers only. None of the lenders whose statements were recorded had admitted having paid any brokerage. The brokerage is charged only once that is at the time of advancing of loan by the lender to the borrower. Dalali income is shown on the receipt basis. In view of the above facts dalali income as shown by the assessee has not been interfered with."

Evidently in the case of ‘Dalal’, no adverse view has been taken in the face of the denials by the borrowers regarding the commission income in the hands of ‘Dalal’. Curiously, similar denials of the parties have not found credence with the revenue and adverse inference against such parties i.e. the assessee before us, has been drawn. Evidently, such a contradictory approach from the side of the Revenue is untenable.

52. On the basis of the aforesaid discussion, therefore, the addition of Rs. 4,98,000 which has been deleted by the CIT(Appeals) is hereby affirmed. The revenue has, thus to fail in its appeal.

53. Before parting, we may also observe that the Revenue had moved an application dated 21-6-2006 signed by the Learned DR for admission of additional evidence with reference to the grounds of appeal raised by the Revenue. The learned DR referred to the provisions of Rule 29 of the Appellate Tribunal Rules, and submitted that the said evidence was collected after the completion of assessment in the case of assessee. The additional evidence is, (i) an examination report/opinion of Laboratory of the Government Examiner of Questioned Documents, Shimla regarding the Diary of ‘Dalal’; and (ii) affidavit of ‘Dalal’ dated 27-10-2004. The learned DR has urged that the documents/evidence "go to the very root of the material" and the same ought to be admitted. The learned DR has argued that the evidence has bearing on the stand of Assessing Officer that the contents of the Diary are authentic.

54. On the other hand, the learned counsel appearing for the respondent assessee has opposed the prayer of the Revenue for admission of aforesaid additional evidence. The primary objection of the respondent is that in a case of assessment covered by Chapter XIV-B of the Act, it is not permissible for the Revenue to bring on record further evidence which the Assessing Officer collected post assessment against the assessee. The learned counsel has relied upon the decision of the Chandigarh Bench of the Tribunal in the case of R.K. Syal v. Asstt. CIT [IT Appeal No. 1165 (Chd.) of 1996, dated 16-11-1998]¹.

55. We have considered the pleas made by both the parties with reference to the admissibility of the aforesaid additional evidence. We have also carefully perused the order of the Tribunal dated 16-11-1998 in R.K. Syal’s case (supra) passed by our co-ordinate Bench. The Tribunal was dealing with admissibility of additional evidence collected by the Department after completion of assessment in the case of the assessee which was collected in the course of assessment of a third party. After an exhaustive exposition of rival contentions, case laws and provisions of Chapter XIV-B of the Act, the Tribunal concluded that it was not permissible for it to admit additional evidence. The following portion of the order of the Tribunal is worthy of notice :

"3.4 We may also make a reference here to the provisions of section 158BC of the Act relating to block assessment, whereunder the issue of notice under section 148 is dispensed with for the purpose of proceedings under Chapter XIV-B and the assessee is also prevented from revised return. Further, under the provisions of section 158BF, penalties for concealment under the provisions of section 271(1)(c) cannot be imposed in respect of undisclosed income determined in block assessment. Having regard to the said provisions, in case of admission of proposed evidence, the Tribunal will have to restore the matter to Assessing Officer for the reasons mentioned by learned DR i.e., to enable the assessee to meet the new facts as now found by Assessing Officer. Such a course of action will thus enable the department to consider the material collected in the case of third parties assessments, after completion of block assessment in the case of the assessee, which could normally have been done by the department by re-opening assessment under the normal provisions of the Income-tax Act, after issue of proper legal notice under section 148. As already mentioned, recourse to the provisions of section 148 is not contemplated under Chapter XIV-B relating to block assessments. Thus, it will be an attempt to bypass the existing provisions of Chapter XIV-B and achieve something indirectly which cannot be done directly under the existing provisions relating to block assessments. Such an attempt will be a colourable device to defeat the provisions enacted by the Legislature and the Tribunal obviously cannot subscribe or accede to the plea urged by learned DR to admit the said evidence. We do appreciate the constraint placed on the department by the existing provisions of Chapter XIV-B to complete assessment hurriedly within the specific period on the basis of whatever evidence is available within that period with the Assessing Officer and at the same time not being in a position to reopen the assessment, as provided in that Chapter so as to consider any further evidence collected against the assessee in his case or connected cases. However, the Tribunal is bound by the existing provisions of law and it cannot act in a way so as to supplement law or remove the lacunae, if any, therein.

3.5 In view of the foregoing position, the prayer of the department to admit the aforesaid evidence as additional evidence is turned down."

56. We find that the situation before us is akin to what was before the Tribunal in the case of R.K. Syal (supra). Moreover we find that the evidence in the shape of forensic report is dated 7-10-2004 and the affidavit of ‘dalal’ is dated 27-10-2004. Both these evidences were available with the Revenue even during the course of first appellate proceedings before the CIT(Appeals). The CIT(Appeals) has passed her order on 4-1-2005. There is no explanation or reason brought on record by the Revenue as to why such evidence could not be produced before the CIT(Appeals) specially when an opportunity was available. The CIT(Appeals), as is evident from her order called for a remand report from the Assessing Officer and has passed an order after considering such report of the Assessing Officer.

57. Be that as it may, following the reasoning canvassed by the Tribunal in the case of R.K. Syal ( supra), we decline the prayer of the Revenue for admission of the aforesaid additional evidence in terms of Rule 29 of the Appellate Tribunal Rules, 1963.

We may also make a mention here that the Income-tax Settlement Commission in its order dated 9-1-2007 in the case of Nand Lal Garg has considered the said evidence and not accepted the claim of the Revenue. However our aforesaid decision should not be construed as any reflection on the merit of the aforesaid additional evidence.

58. In the result, the appeal of the Revenue in IT(SS)/19/Chandi/2005 is dismissed and the C.O. of the assessee in C.O. No. 58/Chandi/05 is allowed.

Insofar as the facts and circumstances in other appeals and Cross Objections, as captioned, are concerned, the same are identical to those considered by us in IT(SS)/19/Chandi/05 and C.O. No. 58/Chandi/2005 respectively. Therefore, our decision in appeal of Revenue in IT(SS)/19/05 and Cross Objection of the assessee in C.O.No. 58/Chandi/2005 applies mutatis mutandis in other appeals and C.Os. also.

59. In the result all the appeals of the Revenue are dismissed and Cross Objections of the assessee stand allowed.

60. We may make a mention in IT(SS) No. 113/Chandi/05, an appeal of the Revenue against which no C.O. has been preferred by the assessee. In this case, although there is no C.O. preferred by the assessee, yet in terms of Rule 27 of the Appellate Tribunal Rules, 1963, the respondent assessee has raised the issue relating to validity of assumption of jurisdiction by the Assessing Officer issuance of notice under section 158BD of the Act. An assessee is entitled to defend the order of the CIT(Appeals) on any ground decided against him in terms of Rule 27 of the Appellate Tribunal Rules, 1963. The CIT(Appeals) has also decided the issue relating to validity of proceedings under section 158BD of the Act against the assessee. We, therefore, deem it fit and proper to consider the plea of the assessee in defence of the order of CIT(Appeals). The appeal of the Revenue is liable to be dismissed on that ground also in view of our earlier discussion.

 

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