TAX APPEAL No 539 of 2003 with TAX APPEAL No 90 of 2004 with SPECIAL CIVIL APPLICATION No 3605 of 2004 with SPECIAL CIVIL APPLICATION No 3960 of 2004 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- NITIN P. SHAH ALIAS MODI Versus DY.C.I.T. -------------------------------------------------------------- Appearance: 1. TAX APPEAL No. 539 of 2003 WITH SPECIAL CIVIL APPLICATION Nos. 3605 of 2004 and 3960 of 2004. MR SN SOPARKAR, SENIOR ADVOCATE WITH MRS SWATI SOPARKAR for Petitioner No. 1 MR MANISH R BHATT for Respondent No. 1 2. TAX APPEAL No. 90 of 2004 MR MANISH R BHATT for Petitioner No. 1 MR SN SOPARKAR, SENIOR ADVOCATE WITH MRS SWATI SOPARKAR for Respondent No. 1 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI Date of decision: 16-18-23/12/2004 COMMON JUDGEMENT (Per : HON'BLE MR.JUSTICE D.A.MEHTA) 1 In Special Civil Application No. 3605 of 2004 while issuing notice the court directed that the said petition shall be heard with Tax Appeal Nos. 539 of 2003 and 90 of 2004. Accordingly all these matters, which are interconnected, have been heard together and are taken up for final disposal with the consent of the learned Advocates for the respective parties. TAX APPEAL No. 539 OF 2003. 2 The appellant is the assessee who has challenged the order of the Tribunal dated 10/7/2003 by proposing the following questions of law stated to arise out of ITA No.3910/AHD/2002 for assessment year 1997-98 : "(i) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that the amount of Rs.67.75 lacs placed as deposit with L.T.Shroff Group is unexplained investment of the appellant and the same is not covered by the disclosure made by the appellant under VDIS ? (ii) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that under VDIS 1997, along with the disclosure, the declarant has to show the basis on which yearwise figures of income was arrived at together with the manner in which the income was bifurcated on the basis of ultimate investments existing as on the cut off date ? (iii) Whether, in the facts and circumstances of the case, the order of the ITAT was perverse in as much as the ITAT has failed to appreciate that the appellant was prevented from sufficient cause and could not have produced the passbook issued by the L.T Shroff Group at any stage prior to the set aside first appellate proceedings ? (iv) Whether, in the facts and circumstances of the case, the order of the ITAT was perverse in as much as it has not properly appreciated the evidences already placed on record and insisted on some hypothetical and hiper technical evidences to be placed on record ? (v) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that CIT(A) can make fresh addition on all together different ground and reasoning after deleting the additions made by the assessing officer? (vi) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that the enhancement of income made by CIT(A) is legal and within his jurisdiction in spite of the fact that the same has been on entirely different grounds which have not been even considered by the Respondent and which has resulted into assessing an altogether new source of income in the hands of the appellant ? (vii) Whether, in the facts and circumstances of the case the order of ITAT was null, void and illegal as the order passed by the Respondent has been held to be illegal, without jurisdiction, null, void and non-est and therefore no addition can be sustained based on the said order or in any subsequent proceeding emanating from the same ? (viii) Whether, in the facts and circumstances of the case the ITAT was right in law in not appreciating the alternate claim of the appellant that if the amount of Rs.67.75 lacs is not recovered from L.T.Shroff Group, the same may be allowed as trading loss ?" 3 Heard Mr.S.N.Soparkar, learned Senior Advocate appearing on behalf of the appellant and Mr.M.R.Bhatt, learned Senior Standing Counsel appearing on behalf of the respondent-revenue. ADMIT. The following substantial question of law arises for consideration : "Whether, on the facts and in the circumstances of the case the order of the Tribunal can be said to be perverse when the Tribunal has failed to appreciate that the appellant was prevented by sufficient cause from producing the passbook issued by L.T.Shroff Group at any stage prior to the appellate proceedings in the second round after assessment order was set aside in the first round ?" 4 The assessment year is 1997-98 and the relevant previous year is 31/3/1997. The assessee was assessed on total income of Rs.67.75 lacs by treating deposit of Rs.67.75 lacs with L.T.Shroff Group as being unexplained investment under Section 69 of the Income Tax Act,1961 (the Act) on 31/3/2000. The said order came to be challenged before CIT (Appeals) who for the reasons stated in his order dated 15/3/2001 set aside the assessment with a direction to the Assessing Officer to offer proper opportunity to the assessee. 5 While framing fresh assessment the Assessing Officer made an addition of Rs.137 lacs by holding that the said amount declared under the Voluntary Disclosure of Income Scheme, 1997 (VDIS) was not credited in the books and no intimation was given to the Assessing Officer. In so far as the amount of Rs.67.75 lacs was concerned the Assessing Officer held that the same cannot be adjudicated in the course of regular assessment proceedings and can only be a subject matter of proceedings under Chapter XIVB of the Act. This order was framed on 28/3/2002. 6 The assessee carried the matter in Appeal before CIT(Appeals) who vide his order dated 23/10/2002 deleted the addition of Rs.137 lacs. However, CIT(Appeals) issued a notice for enhancement in relation to the sum of Rs.67.75 lacs. The assessee submitted a written reply on 9/10/2002 and resisted the proposal for enhancement. The assessee also enclosed a certified photo copy of passbook issued by L.T.Shroff Group along with the said reply. The CIT (Appeals) however did not accept the explanation tendered by the assessee and enhanced income by a sum of Rs.67.75 lacs and also initiated penalty proceedings under Section 271(1)(c) of the Act. Both the assessee and the revenue filed appeals before the Tribunal. The assessee against the addition of Rs.67.75 lacs and the revenue against deletion of the addition of Rs.137 lacs. The Tribunal dismissed both the appeals vide its order dated 10/3/2003. 7 Mr.S.N.Soparkar, Senior Advocate appearing on behalf of the appellant submitted that in so far as the addition of Rs.67.75 lacs was concerned the Tribunal had erred in doubting the authenticity and genuineness of the passbook produced by the assessee by stating that the same was produced at a belated stage before the CIT (Appeals) in the second round against set aside order, and that the assessee had failed to prove the authenticity and genuineness of the passbook. According to Mr.Soparkar the entire approach of the Tribunal was vitiated in law as the Tribunal failed to appreciate the circumstances in which the assessee was obliged to produce the said passbook before CIT(Appeals) in the second round. It was submitted that in the first round as the assessment had been framed within three days of issuance of show cause notice the assessee had not been accorded effective opportunity to meet with case of the revenue and hence the order of the CIT(Appeals) setting aside the said assessment. That in the second round, the Assessing Officer instead of dealing with merits of the addition of Rs.67.75 lacs came to the conclusion that the said amount was not required to be added in regular assessment proceedings but the provisions of Section 158BD were required to be invoked in relation to the said item. In fact the Assessing Officer made addition of Rs.137 lacs, an item which was not the subject matter of the original proceedings. In the circumstances, the assessee was obliged to produce the said passbook before CIT(Appeals) and that too only after CIT(Appeals) issued notice for enhancement. Thus, according to Mr.Soparkar the order of the Tribunal confirming the addition of Rs.67.75 lacs which was made by CIT (Appeals) for the first time in the second round was bad in law and to that extent the order of the Tribunal was required to be quashed and set aside. 8 Mr.M.R.Bhatt, learned Advocate submitted that the assessee had failed to produce the relevant piece of evidence in the first round before the Assessing Authority; not only that the same was not even produced before CIT(Appeals) in the first round. That it was open to the assessee to place the said evidence on record in the set aside proceedings regardless of the opinion expressed by the Assessing Officer, especially when CIT(Appeals) had directed the Assessing Officer to frame the assessment after giving opportunity to the assessee. 8.1 It was alternatively contended that both Commissioner (Appeals) and Tribunal had looked into other evidence and came to the conclusion that assessee was not able to substantiate its stand that the sum of Rs.67.75 lacs formed part of the disclosed amount of Rs.137 lacs for the said assessment year. That the onus which was on the assessee had not been discharged and that was a concurrent finding recorded by the CIT (Appeals) and the Tribunal. In the circumstances, according to Mr.Bhatt there was no error committed by the Tribunal in confirming the addition of Rs.67.75 lacs. 9 The assessment was originally framed on 31/3/2000 under Section 143(3) of the Act. The assessee had not furnished any return of income within time limit specified under Section 139(1) for assessment year 1997-98 and upon being issued notice under Section 142(1) of the Act on 17/1/2000, the assessee replied vide letter dated 16/2/2000 that it had disclosed income to the tune of Rs.817 lacs and a sum of Rs.137 lacs was offered as income for the year under consideration. That therefore as no further income was there to be offered for the assessment year in question it was not necessary to file any return of income. Hence a request was made to the Assessing Officer to drop the proceedings. 10 It appears that a search operation under Section 132 of the Act was conducted at the premises of L.T.Shroff Group on 1/8/1996. The said group appeared to be engaged in the business of financing and acting as a private bank. According to the Assessing Officer from certain loose papers recovered from the said group name of one Shri Nitin P.Modi appeared and as per the said papers there was a credit balance of Rs.67.75 lacs. The assessee was called upon to submit reply vide show cause letter dated 28/3/2000. The assessee objected to the proposed course of action vide reply dated 30/3/2000 and submitted that : (a) assessee was not provided with statement of persons that were proposed to be used against assessee; (b) no inquiries were conducted in the case of the assessee when the search proceedings were carried out in the case of L.T.Shroff Group; (c) the assessee was not identified on the basis of the seized material by carrying out necessary investigation under Section 131 of the Act; (d) the burden was on the revenue to establish the alleged transaction and its consequence to result in taxable income. A further letter dated 31/3/2000 was filed and it was submitted that assessee had already made declaration under VDIS and there was no further income which was liable to tax for the year under consideration. The Assessing Officer rejected the submissions made and framed the assessment on 31/3/2000 adding entire sum of Rs.67.75 lacs as unexplained investment under Section 69 of the Act. 11 The assessee carried the matter in appeal before CIT(Appeals) and one of the basic contentions along with other grounds was that the assessee was not accorded full and proper opportunity to meet with the case of the Assessing Officer. The CIT (Appeals) observed as under : "5.1. The totality of the facts indicates that the assessment suffers from following infirmities: (1) The notice under sec.142(1) enclosing therewith a show cause notice wherein the basis of proceedings initiated against the assessee was given was issued as late as on 28/3/2000, when the proceedings were getting time barred on 31/3/2000. The assessee was confronted for the first time with the information that papers seized in L.T.Shroff group showed a credit balance of Rs.67.75 lakhs in the name of the assessee. Thus, sufficient opportunity was not allowed to furnish an explanation or to rebut the show cause notice. (2) The Assessing Officer did not make the seized material or the statements recorded u/s.132(4) available to the assessee inspite of request made vide reply dated 30.3.2000. The principles of natural justice requires that any material collected behind the back of an assessee and to be used against him in assessment is required to be made available to him so as to give him an opportunity to rebut the same. 6 From the above, it is clear that the Assessing Officer has not given adequate and proper opportunity to the assessee before including the amount of Rs.67.75 lakhs for assessment in his hands for A.Y.1997-98. Also it cannot be conclusively held that the declaration made by the appellant under VDIS,1997 included the aforesaid amount of Rs.67.75 lakhs as before the Assessing Officer, he neither accepted nor clearly denied the existence of the said credit balance in his name which came to be revealed from the search in L.T.Shroff group. The assessment is therefore, required to be made afresh after subjecting the appellant with the material gathered against him and after allowing him a proper opportunity to offer his explanation. For this purpose, the assessment is being set aside to be made denovo as per facts and law." 12 Upon assessment having been set aside fresh assessment was framed on 28/3/2002 wherein no addition in relation to the said item of Rs.67.75 lacs was made and the Assessing Officer merely stated that the said sum can only be assessed under Section 158BD of the Act. As already noticed hereinbefore the addition of Rs.137 lacs in the fresh assessment was carried in appeal and ultimately both the sides went before the Tribunal. 13 In light of the aforesaid findings recorded by CIT (Appeals), it is apparent that the Tribunal erred in adopting the course that it did. Despite the aforesaid facts being available on record the Tribunal states that the assessee has also not given any convincing reason as to why this passbook issued by L.T.Shroff Group was not produced during the original assessment proceedings. The Tribunal records that the assessee stated that he was allowed only three days time. Once this fact was available before the Tribunal and the record proves that, the Tribunal ought not to have brushed aside the explanation of the assessee and proceeded to deal with the addition on merits on other grounds. The law as to principles of natural justice is well settled and needs no reiteration. Even for the purpose of tax proceedings the said principles would come into play and all that the assessee was seeking was a reasonable opportunity. The Tribunal lost sight of the fact that the assessee had no occasion to produce the said passbook in the first round before the Assessing Authority due to short period of notice viz. three days within which the assessment was framed as it was getting barred by limitation. In the second round, the Assessing Officer specifically stated that he did not want to make addition qua the said item of Rs.67.75 lacs and hence the assessee had no occasion to produce the said piece of evidence. That left the assessee with no choice but to produce the said passbook for the first time before CIT(Appeals) in the proceedings of second round, and that too only when the assessee was served with notice for enhancement. 14 In light of the aforesaid fact situation it is apparent that the order of the Tribunal to the extent it confirms the addition of Rs.67.75 lacs cannot be permitted to stand and the same is quashed and set aside. The Tribunal is directed to hear both the parties after giving proper opportunity in relation to the said addition of Rs.67.75 lacs. It will be open to the Tribunal, if it deems fit, to restore the matter to the CIT (Appeals) or the Assessing Authority so as to provide adequate opportunity both to the assessee and the revenue to place on record whatever evidence either side may choose to bring on record. 15 The question is therefore answered in light of what is stated hereinbefore : that the appellant was prevented by sufficient cause from producing the passbook issued by L.T.Shroff Group at any stage prior to the appellate proceedings in the second round after assessment order was set aside in the first round and the Tribunal was in error in holding otherwise. The appeal is accordingly allowed. TAX APPEAL No.90 OF 2004. 16 The appellant revenue challenges the order of the Tribunal dated 10/7/2003 made in appeal filed by the revenue being ITA 99/Ahd/03 by proposing the following two questions : "(a) Whether the Appellate Tribunal was right in law and on facts in up-holding the directions of the CIT(A), that the Assessing Officer while completing fresh assessment pursuant to the directions given by the CIT(A) vide her order dated 15/03/2001 had no right to assess the income of Rs.137 lacs in the fresh assessment order, when the earlier Asstt. order was set aside to be made 'de novo'? (b) Whether the Appellate Tribunal was right in law and on facts in up-holding the directions of the CIT(A) that the provisions of section 158BD of the Income Tax Act were not applicable in this case with regard to bringing to tax the amount of Rs.67.75 lacs ?" 17 Having heard learned Advocates for the parties the appeal is admitted on the following substantial questions of law : "(i) Whether the Appellate Tribunal was right in law and on facts in up-holding the directions of the CIT(A), that the Assessing Officer while completing fresh assessment pursuant to the directions given by the CIT(A) vide her order dated 15/03/2001 had no right to assess the income of Rs.137 lacs in the fresh assessment order, when the earlier Asstt. order was set aside to be made 'de novo'? (ii) Whether, in the facts and circumstances of the case the Appellate Tribunal was right in law in holding that the income of Rs.137 lakhs declared by the assessee in the Declaration under VDIS-97 pertaining to AY 1997-98 cannot once again be held to be liable to tax in fresh assessment for the redetermination of issue relating to the assessability of income of Rs.67.75 lacs? (iii) Whether the Appellate Tribunal was right in law and on facts in up-holding the directions of the CIT(A) that the provisions of section 158BD of the Income Tax Act were not applicable in this case with regard to bringing to tax the amount of Rs.67.75 lacs ?" 18 Mr.M.R.Bhatt, learned Advocate appearing on behalf of the appellant -revenue submitted that the Tribunal was in error in confirming the finding of the CIT(Appeal) that the income of Rs.137 lacs declared by the assessee under VDIS pertaining to A.Y.1997-98 could not be taxed once again in fresh assessment despite the fact that in the first round CIT (Appeals) had set aside the assessment order with a direction to make 'denovo' assessment. According to Mr.Bhatt the CIT(Appeals) having set aside the assessment "to be made denovo as per facts and law" the Assessing Officer was within his right to bring to tax any other item, which according to the Assessing Officer, was taxable for the year under consideration. That both the CIT(Appeals) and the Tribunal had erred in holding that the order of CIT(Appeals) in the first round made on 15/3/2001 was for a limited purpose i.e. as to whether the amount of Rs.67.75 lacs was included in the disclosure made by the assessee under VDIS. 19 Mr.Soparkar responding to the aforesaid submission contended that there was no infirmity in the orders of CIT(Appeals) and the Tribunal. That in a set aside assessment like the present one, where the assessment was set aside for the limited purpose of granting opportunity to the assessee in relation to the addition made i.e. Rs.67.75 lacs, it was not open to the Assessing Officer to process a new source. That both the Appellate Authorities had correctly read the order of CIT (Appeals) made in the first round to mean as having been made for a limited purpose and merely because the CIT (Appeals) had set aside the assessment order for the purpose of making denovo assessment, the Assessing Officer could not be permitted to derive jurisdiction in relation to an item which was not the subject matter of assessment in the first round. 20 As can be seen from the facts which have come on record when the original assessment was framed under Section 143(3) of the Act on 31/3/2000 the question relating to assessability of Rs.137 lacs as income in the course of regular assessment was not the subject matter of consideration. The CIT (Appeals), therefore, while setting aside the said assessment order could not have issued any direction to process the said item in the set aside proceedings and hence the order of set aside has to be read as being confined to the item which was added by the Assessing Officer and which was under challenge before CIT (Appeals). The only way CIT (Appeals) could have issued such a direction was by issuance of notice for enhancement which admittedly has not been done in the first round. In the circumstances, once the assessability of Rs.137 lacs was not the subject matter of consideration in the original assessment made on 31/3/2000 it could not have entered the zone of consideration by CIT (Appeals) and CIT (Appeals) has thus admittedly not given any direction in his order dated 15/3/2001. The Appellate Authorities have also noted the fact that under the Act there are various provisions under which a new source of income in appropriate cases may be taken up for consideration by way of revision, rectification or reassessment. In light of what is stated hereinbefore there is no infirmity in the order of the Tribunal in upholding the direction of the CIT (Appeals) that in the set aside proceedings the Assessing Officer had no right to assess the income of Rs.137 lacs in the fresh assessment order. 18/12/2004. 21 There is one more aspect of the matter. The original assessment was framed under Section 144 of the Act on 31/3/2000 on a total income of Rs.67.75 lacs which came to be set aside by CIT (Appeals). Pursuant to the set aside, while framing fresh assessment the Assessing Officer came to the conclusion that as per provisions of Section 68(1) of the Finance Act,1997 the assessee was not entitled to immunity under VDIS in relation to the sum of Rs.137 lacs, declared to be undisclosed income under VDIS for assessment year 1997-98. According to the Assessing Officer the benefit of VDIS was not admissible to the assessee as