ITA No.322/2005 Page 1 of 38 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No. 322 of 2005 Judgment Reserved On: 12.07.2011 % Judgment Pronounced On:30.9.2011 GURINDER MOHAN SINGH NINDRAJOG . . . APPELLANT Through : Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate. VERSUS COMMISSIONER OF INCOME TAX . . .RESPONDENT Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel. CORAM :- HON’BLE MR. JUSTICE A.K. SIKRI HON’BLE MR. JUSTICE M.L. MEHTA 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1. This appeal was admitted on the following substantial questions of law:- ITA No.322/2005 Page 2 of 38 “1. Whether in the circumstances of the case, the Income Tax Appellate Tribunal was legally correct in confirming the:- i) Addition of Rs.10,00,000/- on the basis of pages 16 and 17 of Annexure A-1 of the seized documents allegedly representing an amount received from Mr. Roop Chand. ii) Addition of Rs.10,00,000/- on account of an alleged purported payment made to Sh. Jitu Virmani on the basis of notes on page No. 24 of Annexure A-1 of the seized documents. iii) Addition of Rs.20,00,000/- on account an amount allegedly received from Jeetu Vitrmani, on the basis of the notings on page 27 of Annexure-1 of the seized documents. iv) The enhancement of assessment of undisclosed income of assessee of Rs. 25,00,000/- on account of payment allegedly received from Jeetu Virmani on the basis of notings in page 21 of Annexure A-1 of the seized documents. v) The enhancement of assessment of an alleged undisclosed income of assessee of Rs.1,05,00,000/- on account of an alleged payment received back in respect of transactions of Chellegata property on the basis of notings in page 21 of Annexure A-1 of the seized documents. 2. Whether the Income Tax Appellate Tribunal has failed to appreciate that in view of the judgment of this Hon‟ble Court in the case of Commissioner of Income Tax Vs. Sardari Lal & Co., reported in 251 ITR 864 (Delhi) [FB], the Commissioner of Income Tax (Appeals) could not have enhanced the income not considered by the Assessing Officer? ITA No.322/2005 Page 3 of 38 3. Whether the order of the Income Tax Appellate Tribunal is not vitiated for non consideration of evidence and in disregard of the law that burden to establish that there was an undisclosed income of the assessee was on the revenue?” It would be imperative to take stock of the facts and events which have given rise to the aforesaid questions. 2. The appellant is an individual. The appellant draws income from salaries, income from house property and income from other sources. A search and seizure operation under Section 132 of the Income-Tax Act (hereinafter referred to as „the Act‟) was conducted on 19th November, 1999 at the residential and office premises of the appellant at Mumbai. On the basis of the aforesaid search, a notice under Section 158BC of the Act was issued on 25th September, 2000. In compliance thereto the appellant filed a return of an undisclosed income for the block assessment period 1990-91 to 2000-02 on 13th November, 2000, declaring therein an undisclosed income of `15,00,000/-. However, the Deputy Commissioner of Income Tax, Circle 41 (1), New Delhi vide orders dated 28th February, 2002 under Section 158 BC of the Act computed the total undisclosed income at `57,42,698/- by inter alia making the following additions to the declared undisclosed income of `15,00,000/- by the appellant: ITA No.322/2005 Page 4 of 38 (i) An amount allegedly received from Mr. Roop Chand Indermal Singhi ` 10,00,000 (ii) Dividend received on account of Canshares `2,42,698 (iii) An amount allegedly paid to Mr. Jitu Virmani ` 10,00,000 (iv) An amount received from Mr. Jitu Virmani ` 20,00,000 Total ` 42,42,698 In terms of the aforesaid order dated 28th February, 2002 under Section 158BC of the Act, the Assessing Officer made the additions of undisclosed income of `10,00,000/- under Section 68 of the Act of the amount received from Sh. Roop Chand Indermal Singhi by holding as under:- “9.In view of the above observation, the submissions of the assessee that ` 10 lakhs received back from Mr. Singhi was utilized for making unaccounted expenses is not tenable. The entries as appearing on page no. 20,24 and 60 and ` 2,50,000/- cash seized from the assessee‟s premises and cost of jewellery ` 2,59,000/- and misc. items taken for `1,35,000/- are distinctively separate entities and items from ` 10 lakhs received by the assessee as per the agreement appearing on page No. 16 & 17 of Annexure A-1. In the light of the above, ` 10 lakhs on page No. 16 & 17 of Annexure A-1 represents the undisclosed income of the assessee u/s 68 of the IT Act 1961 for the FY 93-94 and 94-95 and is added to the undisclosed income of the assessee for the block period.” ITA No.322/2005 Page 5 of 38 The Assessing Officer made an addition of `2,42,698/- as undisclosed income on account of dividend received on canshares. We are not concerned with this addition in the present appeal. Further the Assessing Officer made an addition of ` 10,00,000/- on account of amount allegedly paid to Mr. Jitu Virmani as undisclosed income by holding as under:- “11.The seized documents throws light on the fact that GMS construction Co; in which the assessee is a Director is into the business of Real Estate i.e. purchase, development and sale of property. Properties as appearing on the seized documents in Annexure A-1 have been purchased in Bangalore such as Rajaji nagar property as appearing on page No. 54 and 27 of the seized documents. They have been purchased through a person named Mr. Jitu Virman. The identity of Mr. Jitu Virmani was revealed by the assessee in his statement recorded on oath during the search. “he is a builder stationed at Banglore with whom various joint ventures are under consideration”. During the assessment proceedings it further came to light that Mr. Jitu Virmani was closely associated with the Real Estate business of the assessee and various purchases were undertaken by the assessee with Mr. Virmani for development of Real Estate business in and around Banglore. As borne out by the seized documents Mr. Jitu Virmani is a builder of Banglore with whom the assesse had been regularly dealing in Real Estate Business. On page no. 54 of Annexure A-1 of the seized documents, the details of land belonging to the area Rrjaji Nagar is depicted. As per this, the area is approximately 34,000 sq. feet. The payment is shown as 10C + 25 CH. The payment schedule is worked as `5,00,000/- per week and at the end of the paper it is mentioned „plans from Jitu‟. At page No.27, it is mentioned „received from Jitu on account of Rajaji Nagar property ` 20 L‟. The assessee was required to furnish complete details of the notings of these two pages i.e. page No. 54 and 27 of the seized documents at Annexure A-1. The ITA No.322/2005 Page 6 of 38 assessee stated vide his letters dated 20th February, 2002 that 10 C and 25 CH as appearing on page No. 54 represent cheque and no element of cash. The assessee maintained that this transaction pertains to GMS Construction Co. (P) Ltd. and both C and CH denotes cheques. It was further stated that only a sum of `25 lakhs has been paid by the Company. Since the agreement could not materialize due to recession in the market, the balance amount of ` 10 lakhs was not paid. This transaction of the Co; it was averred is duly recorded in the books of GMS Construction Co.(P) Ltd. and reflected in its return. It was further clarified that the assessee could not read due to severe eye sight problem and he must have omitted to write the letter H while writing 10C by being interrupted by a visitor/telephone call. Thus, it was stated that there is no element of cash transaction on these papers which belongs to GMS Construction Co (P) Ltd.. During the course of search, the assessee‟s statement was recorded and he was asked to comment on page No. 54 as above. He was asked to comment on the suffix C and Ch. It was stated by him that both the terminologies are of cheques and that it was agreed that `10 lakh will be paid on MOU and `25 lakhs on agreement. However, since the terms changed, no MOU was prepared and direct agreement was made. Therefore, first `25 lakhs was paid and the balance is yet to be aid. The assessee was also asked in the said statement to produce any copy of the agreement which states that `10 lakhs was to be paid on MOU and ` 25 lakhs on final agreement. The assessee replied that there was no agreement and the said paper is a part of their verbal discussion prior to entering into a joint venture. The above explanations of the assessee is not tenable given the fact that no satisfactory evidences have been furnished by the assessee so as to rebut that `10 lakhs as mentioned as 10 C was not given to Mr. Jitu Virmani. Furthermore, page No.27 corroborates the fact that cash money indeed formed part of the business transactions and the same was received back by the assessee from Mr. Jitu Virmani. The assessee‟s explanations that he had omitted to write CH is only an afterthought and an attempt to evade and conceal the amount of `10 lakhs which he had paid to Mr. Jitu ITA No.322/2005 Page 7 of 38 Virmani. In view of the above observations, `10 lakhs as appearing on page No.54 written as 10 C is added to the undisclosed income of the assessee as representing is concealed income for the block period.” The Assessing Officer made an addition of `20,00,000/- on account of amount received from Mr. Jitu Virmani as undisclosed income, by holding as under:- “13. Importantly enough, this document dated 12.2.1996 was found at the office premises of the assessee and was seized during the course of raid u/s 132 of the IT Act on 19.11.1999. If this document did not have any bearing or was not related with the transactions of the assessee, there was no justification for this document to be found at the assessee‟s office premises even after a span of more than three years. It is clear also that page No.54 as detailed above indicates cash transactions between the assessee and Mr. Jitu Virmani and the amount of money returned by Mr.Jitu Virmani as appearing at page no.27 of ` 20 lakhs is certainly a part of the agreement between the assessee and Mr. Jitu Virmani regarding development of property at Rajaji Nagar, Banglore. In view of the above, the assessee‟s argument that the receipt of `20 lakhs as appearing on page no.27 is not connected with him does not hold ground A sum of `20 lakhs as appearing on page no. 27 is hence treated as undisclosed income of the assessee for the F.Y.95-96 and is added to the undisclosed income of the assessee for the block period.” The appellant being aggrieved from the aforesaid order u/s 158BC of the Act, filed an appeal before Commissioner of Income Tax (Appeals)-XXX, New Delhi and challenged the additions made to the declared undisclosed income which was made by the Assessing Officer on various grounds. ITA No.322/2005 Page 8 of 38 3. The Commissioner of Income Tax (Appeals) disposed off the appeal vide orders dated 24th March, 2003. The learned CIT (A) not only confirmed the additions made by the Assessing Officer but also enhanced the assessment made u/s 158 BC of the Act. The CIT (A) in terms of the aforesaid order enhanced the assessment of undisclosed income made by the Assessing Officer in respect of following alleged transactions: i. Chellagatta Properties ii. R.T. Nagar Properties iii. NRE accounts of R.P.S. Baweja & Mrs. Rekhi. The CIT (A) enhanced the assessment of undisclosed income of the appellant by ` 1,05,00,000/- on account of alleged deal in respect of Chellagatta properties by holding as under:- “13.5 The facts mentioned above very clearly point out the following: i. The notings on the page are in the handwriting of Sh. G.M. Singh ii. In his statement on 5.2.2000 Sh. G.M. Singh has confirmed that the notings relate to Chellagatta properties. iii. It was also confirmed by him that `1,35,80,000 was invested in Chellagatta properties which were received back. iv. On 8.2.02 Sh. G.M. Singh said that ` 1.35 crores was paid to various individuals on behalf of Soloman David by him and his wife (Sh.G.M. Singh `67.81 lacs, Mrs. Praveen Nindrajog `67,86 lacs). In this reply he also mentioned that these amounts were subsequently ITA No.322/2005 Page 9 of 38 received by him. The statement of accounts reproduced above show that these amounts were advanced to different persons on 30.3.96, i.e., after 4.9.95, the date recorded in the seized document. The statements of accounts further show that some of the amounts were received back much after 4.9.95 as follows: 22.1.99 ` 9 lacs 24.1.99 ` 1 lac 23.5.2000 ` 5 lacs 23.6.2000 ` 19,64,218 4.2.2002 `,29,255 23.5.2000 ` 5 lacs 23.6.2000 `16,37,625 4.2.2002 ` 6,48,945 6.2.2002 `10 lacs The dates mentioned above for advancing the amount as well as the receipt of amount cannot be related to the seized document at all for two important reasons as follows:- i. The documents record “Recd. 1.05 crores + 35 lacs chq. On 4.9.95”. This noting cannot be broken up in two parts – one for ` 35 lacs and other for ` 1.05 crores, particularly when the notings have been made in the past tense, i.e. Sh. G.M. Singh has recorded that on 4.9.95 itself both amount of `1.05 crores and `35 lacs were received. It cannot be said that ` 1.05 crores were received after 4.9.95 but Sh. G.M. Singh recorded the same on the date of receipt of ` 35 lacs. The appellant is trying to defend himself only by saying that on 4.9.95 ` 1.05 crores was not received even though this is recorded as such. ii. In his first statement given on 5.2.2000 Sh. G.M. Singh had also stated that ` 1.35 crores were already invested. Therefore, it was not open for him to change his stand that this amount was advanced in the year 1996 as per the statement of accounts given during the course of assessment proceedings. ITA No.322/2005 Page 10 of 38 (f) The notings mentioned two amounts of ` 1.05 crores and ` 35 lacs whereas the explanation given during the course of assessment proceedings mentioned two different amounts i.e. ` 67.81 lacs for Sh. G.M. Singh and ` 67.86 lacs for Mrs. Praveen Nindrajog. There is no correlation between these two sets of figures and the explanation given cannot explain the notings on page 21. (g) As Sh. G.M. Singh had confirmed that `1.35 crores were already invested, it is logical to believe the writings on page 21 that the same amount was received back on 4.9.95, after the deal was not finalized. 13.6 On the basis of above mentioned facts and analysis of the same the conclusion that can be arrived at is that the deal in this property was made in the year 1995 and approximately ` 1.35 crores were paid to different persons through Sh. Jeet Virmani. The deal did not materialize subsequently and the amount given was received back on 4.9.95 ` 35 lacs were received in cheque and ` 1.05 crores were received back in cash which was not accounted for. All explanations offered subsequently are afterthought. Accordingly ` 1.05 crores will be treated as income of Sh. G.M. Singh.” 4. The CIT (A) further enhanced the assessment of the undisclosed income of the appellant by `25,00,000/- on account of amount allegedly received separately in respect of R.T. Nagar Property, by holding as under: “14.1 In his reply before the AO given on 8.2.02 he mentioned that the balance amount of `25 lacs was not received and this amount had been adjusted against the amount due to Sh. G.M. Singh and his wife from Soloman David Holdings P. Ltd. I wanted to know how the balance amount had been adjusted and in response to this query the appellant‟s AR replied on 17.3.2003 that the assumption that Mr. Jeetu paid the remaining balance of ` 25 lacs was not correct at all. On the basis of nothings in the seized documents and his reply given before the AO I ITA No.322/2005 Page 11 of 38 am unable to agree with the changed stand of the appellant because of the following reasons: 1. On page 21 it has been clearly mentioned that the amount receivable was ` 50 lacs. 2. On 8.2.2002 it was again clearly explained that “this amount (the balance amount of `25 lakhs) had been adjusted against the amount due to Mr./Mrs. G.M. Singh from Soloman David Holding P. Ltd.” in view of this the stand of the appellant now that the additional amount of ` 25 lacs was neither received nor adjusted cannot be accepted. Therefore, the only conclusion pssobiel fro these facts is that ` 25 lacs was received separately and has not been reflected in the regular books of accounts. Accordingly, ` 25 lacs is treated as unaccounted in income of the appellant.” Being aggrieved from the order of the CIT (A) dated 24th March, 2003 the appellant assessee preferred an appeal before the Tribunal. Before the Tribunal, the appellant reiterated its submissions as made before the Assessing Officer and the CIT (A). It was further contended that the CIT (A) had no power to enhance the assessment by discovering a new source of income not considered by the AO in his order which was under challenge. The appellant placed reliance on the Full Bench judgment of this Court in the case of Commissioner of Income Tax Vs. Sardari Lal & Co. 251 ITR 864. It was further submitted before the Tribunal that whenever the question of taxability of income from a new source which had not been considered by the AO is concerned, the jurisdiction to deal with the same in appropriate cases may be dealt with under Section 147/148 of the Act and Section ITA No.322/2005 Page 12 of 38 263 of the Act if requisite conditions are fulfilled. It was also submitted that enhancement of income made by the CIT (A) was not as per law. 5. The Tribunal has, however, affirmed the order of the CIT (A) on all the aforesaid additions. Only one enhancement made by the CIT (A) of `2,12,17,681/- as undisclosed income on account of treating the NRE accounts in the name of Mr. Manjit Rekhi and Mrs. RPS Baweja as benami accounts of the assessee has been deleted with which we are not concerned in the present appeal. This appeal is admitted on the questions of law which are reproduced in the opening para of the present judgment. 6. With this background we proceed to take note of the arguments of each addition in the light of arguments advanced by counsel for either side. Question No. 1 (i) Addition of `10,00,000 on the basis of pages 16 and 17 of Annexure A-1 representing the amount received from Mr. Roop Chand. 7. Insofar as this addition is concerned, it was based on pages 16 and 17 of AnnexureA-1 which were the documents seized at the time of search at the premises of the assessee. Indisputably, a sum of `10 lacs, as per these documents were received by him from Mr. Roop Chand Indermal Singhi was utilized for ITA No.322/2005 Page 13 of 38 making unaccounted expenses which explanation was found to be totally untenable. The assessee had relied upon the entries appearing on pages 20,24 and 60 as well as `2,50,000/- of cash seized from the premises of the appellant and cost of jewellery found at `2,59,000/- and misc. items valued at `1,35,000/-. However, a definite finding is arrived at by all the authorities below that those are distinct and separate entities and items from `10 lacs received by the assessee as per the agreement entered into with Mr. Roop Chand Indermal Singhi. The Tribunal has further recorded that the assessee has been taking different stand at different times to explain pages 16 & 17 of Annexure A-1 and he should have come out with a definite stand while explaining the amount of ` 10 lacs. We may reiterate that no serious attempt was made to challenge or shake the aforesaid finding. We, thus, are of the opinion that this addition was rightly made. Question No. 1(ii) Addition of Rs.10,00,000/- on account of an alleged purported payment made to Sh. Jitu Virmani on the basis of notes on page No. 24 of Annexure A-1 of the seized documents. 8. We have already reproduced in detail the order of the Assessing Officer which contained reasons prevailed while making addition of this amount. The extracted portion gives the nature of transaction appearing in the seized documents. To put it in nutshell as per the seized documents, certain properties in Banglore were purchased by GMS Construction Company in which the assessee is the Director. These were purchased through one Mr. Jitu Virmani who was a builder ITA No.322/2005 Page 14 of 38 stationed at Banglore with whom various joint ventures were under consideration. Mr. Jitu Virmani was closely associated with the real estate business of the assessee. The seized documents disclosed about the dealings of land at Rajaji Nagar, Banglore which was approximately 34,000 sq. ft. The payment is shown as 10 C + 25 CH (from this it was inferred that 10 lacs was in cash and ` 25 lacs in cheque). The document further mentioned the payment schedule i.e. ` 5 lacs per week. The explanation of the assessee that both 10 C and 25 CH represented cheques was not accepted and rightly so. These are again the findings which have been arrived at after minute analytical assessment of the documents in question by all the three authorities below. 9. We agree with the observation of the Tribunal that the documents seized were rightly treated as document depicting the transactions between the assessee and the Jitu Virmani who was a business associate of the assessee and whatever has been written off in the seized document was not the figment of imagination. We again reiterate that no serious attempt was made to question the aforesaid findings of the authorities below with which we are in agreement and hold that this addition was also rightly made. ITA No.322/2005 Page 15 of 38 Question No. 1 (iii). Addition of Rs.20,00,000/- on account an amount received from Jeetu Vitrmani, on the basis of the notings on page 27 of Annexure-1 of the seized documents. 10. This addition is made on the basis of notings on page 27 of Annexure A-1. The relationship between Jitu Virmani and the assessee has already been noted above. Notings on this page clearly revealed that this was also dealing in respect of Rajaji Nagar land and as per this document a further sum of ` 25 lacs was received as a part of the agreement between the assessee and Jitu Virmani regarding the development of property at Rajaji Nagar. Therefore, for the same reasons given in respect of an addition of ` 20 lacs based on page -54 this addition is also perfectly justified. 11. In fact, we may state at this stage that the entire thrust of argument of Mr. C.S. Aggarwal learned Senior Counsel appearing for the appellant/assessee pertain to the addition of ` 25 lacs and `1,05,00,000/- made by the CIT (A) thereby enhancing the amount of