COMMISSIONER OF INCOME TAX Vs. ITAT

JUDGEMENT

(1.) THE D.B. Income Tax Reference Nos. 59/1998, 31/1999, 93/1999 and 27/1999 and S.B. Civil Writ Petns. Nos. 2723/1997 and 1070/1997 are disposed of by the common order as they arise out of the survey under section 133A of the Income Tax Act, conducted on 25 -11 -1994, at the premises of the assessee Mool Chand Salecha impounding all the books of accounts, ex parte assessment order dated 24 -2 -1995, and the ultimate order of the Tribunal dated 12 -3 -1996.

(2.) BRIEFLY stated the facts of the case are that the assessee Mool Chand Salecha deals in cloth dyeing and trading business. He has been filing return in his individual capacity showing share income from Praveen Cotton Mills, Jasol, and as Karta of Hindu undivided family (hereinafter referred to as 'the HUF') M/s. Mool Chand Praveen Kumar and as partner of M/s. Parmeshwari Textile Mills, Jasol. As no return for the assessment year 1994 -95 was filed, a survey under section 133A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act '), was conducted at the premises of M/s. Praveen Cotton Mills and M/s. Parmeshwari Textile Mills, Jasol, on 25 -11 -1994. During survey operation, assessee Mool Chand Salecha disclosed in his statement that he was drawing a salary of Rs. 30,000 per annum. from M/s. Praveen Cotton Mills and was also partner of M/s. Parmeshwari Textile Mills, Jasol in his HUF capacity. The tax authorities also recovered the account books of three concerns, viz., M/s. Sumit Textile Mills, M/s. Sabarmati Mills India and M/s. Arvind Padding Works for the assessment year 1995 -96. With respect to the said firms, the assessee Mool Chand admitted that all the three concerns were owned by him and the capital introduced in the three concerns was from his undisclosed income in the form of deposits in the books of account in various names Accordingly, he offered to surrender the income of Rs. five lakhs and Rs. six lacs for the assessment years 1994 -95 and 1995 -96, respectively, as capital introduced in the three concerns out of his undisclosed income. He also admitted that he did not raise any loan from anybody and all cash deposits appearing in his account books in different names, represented his undisclosed capital and are included in the surrendered capital of Rs. ten lakhs for the assessment years 1994 -95 and 1995 -96 in the three concerns. He also admitted that the account books of all the three concerns are written in his own handwriting or in the handwriting of his Muneem Rajesh and Siremal. Regarding the bank accounts, he stated that Smt. Babita Surendra Kumar was authorised by him to operate the bank account of M/s. Sumit Textile Mills and Smt. Damyanti Lalit Kumar to operate the bank account of M/s. Sabarmati Mills. He further stated that as his business was mainly at Ahmedabad, he resided there with other family members. Regarding the sale of said three concerns, he admitted that the sales were to the tune of Rs. seventy lakhs approximately in the assessment year 1994 -95. He also admitted that the accounts were not got audited under section 44AB. In the facts of the case, the income -tax authorities issued a summons under section 131(1) to the assessee on 25 -11 -1994, to produce the account books found at the time of survey, which were subsequently produced and impounded under section 131(3) of the Act of 1961. The examination of the account books revealed that said concerns were in existence prior to the assessment year 1994 -95 also. For production of the remaining books of accounts and account books of earlier years, summonses under section 131(1) were issued to the assessee on 6 -12 -1994, but no compliance was made by the assessee. In view of the fact of non -production of account books of earlier years, enquiries were conducted from Barmer Central Co -operative Bank, Jasol. The copy of account opening form and copies of bank accounts since beginning in respect of the three concerns were also called for. The Barmer Central Co -operative Bank, Jasol under communication dated 30 -12 -1994, intimated that all the concerns were the proprietary concerns of Smt. Damyanti, Ganpatlal and Surendra Kumar and the accounts were in operation since 5 -2 -1988, 26 -4 -1991 and 19 -12 -1991, respectively. It further revealed that all the three accounts were introduced to the bank by the assessee Mool Chand himself. It further revealed that though the cheques of three accounts were signed by Smt. Damyanti, Shri Surendra Kumar and Shri Ganpat for M/s. Sabarmati Mills India, Sumit Textile Mills and Arvind Padding Works respectively, the withdrawals of cheques of 'self' were made mostly by Munim of assessee Mool Chand, viz., Siremal and Rajesh Kumar. Summonses under section 131 were issued to Shri Surendra Kumar, Smt. Damyanti Devi and Shri Ganpat Lal on 9 -2 -1995. Surendra Kumar and Smt. Damyanti did not make compliance but Ganpatlal attended on 10 -2 -1995, and his statement was recorded on oath. He stated that he was doing job work of washing grey cloths on small scale in the name of M/s. Arvind Padding Works with the initial investment of Rs. 2,000 taken as loan from his brother -in -law Shri Mohanlal. He denied to have maintained books of account. When he was confronted with the account books of M/s. Arvind Padding Works, he denied to be the owner of such books and stated that as these account books have been found from the premises of Shri Mool Chand, he can only speak about the maintenance and transactions recorded in the said books. He, however, admitted that the bank account in his name was introduced by Mool Chand and he has been doing petty job work of various firms of assessee Mool Chand and his family members. On appreciation of these facts, the assessing authority concluded that the assessee Mool Chand was the actual owner of the said three concerns and Shri Surendra Kumar, Smt. Damyanti and Ganpatlal were the only benamidars of Mool Chand. Accordingly, he issued a notice under section 142(1) to the assessee Mool Chand and his family members calling upon them to file return of their income on or before 30 -11 -1994. After a great hassle, Mool Chand filed return on 14 -2 -1995, showing his income of Rs. 57,480 for the assessment year 1994 -95 including income of Rs. 14,065 from M/s. Sumit Textile Mills and Rs. 2,124 from Sabarmati Mills India. The assessing authority found that the sale of M/s. Sumit Textile Mills and M/s. Sabarmati Mills for the assessment year 1994 -95 was for Rs. 3,06,45,038. Obviously, this sale was not possible with a meagre investment of Rs. four lakhs surrendered in the two concerns for the assessment year 1994 -95. Further, for a turnover of Rs. 3.6 crore, at least a capital of Rs. fifty lakhs was required. The assessee was given show -cause notice as to why a sum of Rs. fifty lakhs may not be treated as capital from the undisclosed sources on estimate basis. Because of non -cooperation of assessee Mool Chand, the assessing authority was compelled to proceed under section 144. The assessing authority concluded that assessee had owned the ownership of three concerns and he was the real owner of all the three concerns. The assessee made a request not to proceed with the proceedings as he had filed an application before the Settlement Commission on 16 -2 -1995. The request was turned down on the ground that simply filing of application before the Settlement Commission, was not sufficient and the proceedings could not be stayed unless the application was admitted by the Commission. The assessing authority expressed that the assessee was intentionally avoiding the assessment proceedings, hence, he proceeded ex parte with the assessment. The assessing authority computed the income of the assessee Mool Chand as follows :

(3.) IT was contended before the learned Tribunal on behalf of the assessee that the assessing authority in undue haste committed severe irregularities in the survey as well as assessment proceedings. It was submitted that the assessing authority while exercising the powers under section 133A, had no power to impound the books of account in view of clear prohibition provided under sub -section (4) of section 133A. It was also contended that the assessee had a right to submit the belated return under section 139(4) and under section 153 upto 31 -3 -1995. The assessing officer had time upto 31 -3 -1996, to complete the assessment. It was submitted that the assessing officer committed error in not taking into consideration the return filed by the assessee on 14 -2 -1995. According to the learned counsel by issuing notice under section 133(1), the assessing officer curtailed the statutory period of submitting return to the assessee. It was also argued that in all fairness, the assessing officer should not have proceeded with the assessment proceedings, once it was brought to his notice that the settlement application was submitted under section 245C with the Settlement Commission on 16 -2 -1995. He also criticised the summary way of dealing by the assessing officer as well as the appellate authority with respect to the additions. It was argued that the assessee was denied the opportunity of hearing by refusing to supply the incriminating documents which were illegally seized and impounded during survey. It was also argued that if the accounts lying with the department were voluminous or complicated, the assessing officer had a power under section 142(2A) to get the accounts audited and could have then determined the income instead of doing so arbitrarily. It was thus urged that the assessment made under section 144 may be annulled or set aside with the direction to make assessment de novo. On the other hand, it was submitted by the Departmental Representative that all the three proprietary concerns had a turnover exceeding Rs, forty lakhs, yet the books of account were not got audited by the assessee in accordance with the mandatory provisions of sections 44A and 44B. It was also submitted that no returns were filed with respect to the income arising from the said three concerns. It was also argued that nothing more was required to be done, as assessee himself had surrendered rupees eleven lakhs at the time of survey. With respect to denying of opportunity of hearing to represent the case fully during the assessment proceedings, it was submitted that in the peculiar facts and circumstances of the case, particularly looking to the gross tax evasion by the assessee, the assessing officer had no other option but to pin him down by invoking the provisions of section 144. As regards the settlement application, it was submitted that the proceedings could not have been stayed simply because the application for settlement was filed before the Commission. The findings of the learned Tribunal are summarised as follows :