Commissioner of Income Tax vs Vinayak Plasto Chem. (P) Ltd.

J.K. Ranka, J.—This appeal under s. 260A of the IT Act is directed against the order of the income tax Appellate Tribunal, Jaipur Bench, Jaipur (for short Tribunal) dt. 21st Nov., 2008 and is relevant for the block period 1st April, 1995 to 20th March, 2002. The brief facts emerging on the face of record are that search operation came to be carried out by the authorised officers of the IT Department on 20th March, 2002 at the residential and business premises of Vaidya Shri Narayan Das Swami at Phulera. During the course of search, incriminating documents in the nature of computerized project report was found and seized, which pertained to the respondent-assessee, as per Annex. A-23 pp. 1-12 of the Panchnama, dt. 20th March, 2002. On the basis of the said proceedings, notice under s. 158BD r/w s. 143(3) of the IT Act came to be issued requiring the assessee-respondent to file a return as contemplated under s. 158BD r/w s. 158BC. The assessee submitted a return for the block assessment in Form No. 2B declaring nil income. It is the case of the respondent that the assessee is a private limited company and was incorporated on 12th Jan., 1996 with an object of manufacturing cables, conductors, electrical transformers etc. and is in the same business since 1997 and has been submitting its return of income regularly. It revealed from the Annex. A-23 seized from the premises of Vaidya Narayan Das Swami and as per the project report it transpired that the assessee had prepared a project report for availing loan from the financial institutions on plot of land bearing F-551-A, Road No. 6 VKIA, Jaipur and thereafter, after initial purchase, work shed building construction was made and respondent assessee started production from 15th Jan., 1997. On being queried about the project report, the assessee replied that the assessee to obtain loan got prepared the project report for submitting to various financial institutions from where the assessee was willing to obtain loan namely Rajasthan Financial Corporation (RFC) and/or State Bank of India and/or SBBJ and it was submitted that it is a tentative project report so that the company may obtain a loan and effectively make alteration and modification and construction necessary for the industry, which was needed by it. On being queried to prove the source of income and the investment as per the project report is concerned, it was submitted that whatever investment has been made is duly reflected in the books of accounts. However, the books of accounts have been lost and even an intimation report was submitted with the Vishwakarma Police Station. Further, in the alternative, it was submitted that it contains only projection of the figures and do not suggest that assessee has made any investment or incurred cost to that extent. In the last alternative, it was also submitted that the project report did not pertain to it and merely because the name of the assessee finds place, there is neither signatures of any of the Directors or relatives on these papers nor the date has not been mentioned and even the authenticity of the report is doubtful. However, the AO was not satisfied and dissatisfied with the explanation offered by the assessee an addition of Rs. 36,21,692 was made as per the figures mentioned in the project report.

On the objection of initiating proceedings under s. 158BD of the Act that the proceedings have wrongly been initiated, the AO held that the proceedings have been validly initiated and accordingly assessment came to be finalised.

Dissatisfied with the assessment order, an appeal came to be preferred before the CIT(A) on both the issues namely challenging the proceedings under s. 158BD so also the aforesaid addition of Rs. 36,21,692. However, insofar as initiation of proceedings under s. 158BD is concerned, the CIT(A) came to the conclusion that the order is within jurisdiction. In so far as the addition made on the basis of project report is concerned, after considering the entire factual matrix and explanation offered by the assessee, the CIT(A) came to the conclusion that there is no justification for the said addition and accordingly deleted the said addition.

Dissatisfied with the said order of the CIT(A), an appeal came to be preferred by the Revenue before the Tribunal while cross-objections were filed by the respondent-assessee. The Revenue challenged the deletion of the addition on the basis of the project report to the extent of Rs. 36,21,692, the assessee challenged the initiation of proceedings under s. 158BD.

The Tribunal after considering the entire issue came to the conclusion that not only the addition has rightly been deleted by the CIT(A) amounting to Rs. 36,21,692, but also accepted the contention on behalf of the assessee that the proceedings initiated under s. 158BD was bad and even quashed the assessment. It is this order of the Tribunal which has been assailed before us.

Shri R.B. Mathur, learned counsel for the Revenue submitted that the Tribunal has in a summary manner come to the conclusion that proceedings under s. 158BD is not proper without bringing any material on record. He contended that the incriminating document namely project report having been found in the search, an AO could validly form his opinion on such project report and proceedings under s. 158BD could have been initiated. He would further contend that the Tribunal has erred in law in quashing the assessment. He would further contend that the proceedings under s. 158BD have rightly been initiated as incriminating documents were found in a search on the premises of Vaidya Narayan Das Swami, which pertained to the respondent and the AO assessing Vaidya Narayan Das Swami could not have acted upon the said incriminating documents as it did not pertain to him and related to the present assessee and only AO having jurisdiction could have initiated proceedings under s. 158BD and which was rightly initiated. He would further contend that there had been proper basis and prima facie evidence to initiate the proceedings under s. 158BD and only prima facie basis has to be formed and once the incriminating document relating to the assessee, may be they were signed or not, does not make any difference. The AO having the jurisdiction over the assessee had no option except to initiate the said proceedings.

He would further contend that the assessee got prepared the project report and naturally acted upon it and the figures did not match/tally with the figures shown in the return of income over the years. He would further contend that the books of accounts were stated to be lost when queries were raised to produce the books of accounts. If the said figures were part of books of accounts and the assessee came out with the plea that the books had been lost and just to create evidence requisition slip of one of the police station was produced, which is insufficient to come to the said conclusion. The Tribunal ought not to have decided the issue on merits and to give its own conclusion and in deleting Rs. 36,21,692 on merits.

He would further contend that none of the figures in the project report matched with the figures even as per the return of income and/or profit and loss account/balance-sheet, which were on record over the years. He contended that substantial questions of law arise out of the order of the Tribunal for consideration of this Court.

We have heard the learned counsel for the appellant/Revenue and have perused the impugned order.

In our view the AO having found the project report/incriminating document relating to the assessee in the course of search, he had no option but to act under s. 158BD, which appears prima facie in order. The Hon''ble apex Court in the case of Manish Maheshwari Vs. Asstt. Commissioner of Income Tax and Another, had an occasion to consider the point with reference to question No. 1. In the aforesaid case, the AO did not have jurisdiction over the case of above assessee, but some other AO had jurisdiction over the matter and the AO neither recorded any satisfaction, which was mandatory nor had it transferred the case to the AO having jurisdiction over the matter and proceeded to assess himself when he had no jurisdiction on that assessee. Consequently, the Hon''ble apex Court in the facts of above case observed as under:

Law in this regard is clear and explicit. The only question which arises for our consideration is as to whether the notice dt. 6th Feb., 1996 satisfies the requirements of s. 158BD of the Act. The said notice does not record any satisfaction on the part of the AO. Documents and other assets recovered during search had not been handed over to the AO having jurisdiction in the matter.

No proceeding under s. 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November, 1995. No other information had been furnished. The provisions contained in Chapter XIV-B are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened.

As the AO has not recorded its satisfaction, which is mandatory; nor has it transferred the case to the AO having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed. However, in the facts and circumstances of the case, there shall be no order as to costs.

However, in the present case as observed, the authorised officer did pass on information to the AO, who had the jurisdiction and who proceeded ahead to assess. Therefore, in our view, insofar as question No. 1 is concerned, the Tribunal was not Justified in quashing assessment when the present AO did have jurisdiction, as he was the relevant AO of the present assessee.

However, addition was also challenged by the assessee on merits before the AO, CIT(A) as well as the Tribunal. Hence we consider the second question on merits.

On perusal of facts found we notice that Tribunal as well as CIT(A) both the appellate authorities have given a concurrent finding of fact that the assessee company got made the project report at different point of time for submitting them to financial institutions. The project report, which was submitted to the RFC with total project cost of Rs. 61.40 lacs against which RFC vide letter dt. 29th March, 1996 intimated to sanction Rs. 31.25 lacs against the application of Rs. 38 lacs made by the respondent-assessee and it is an admitted fact that the assessee did not avail any loan on the said project report. Similarly, the assessee company also furnished a fresh project report indicating the cost of project at Rs. 65.06 lacs to SBBJ, but the SBBJ bank vide its letter dt. 23rd Oct., 1996 sanctioned term loan of Rs. 25 lacs and cash credit limit of Rs. 10 lacs and these facts indicate that the project reports which were found in search were not acted upon by the assessee even for submitting the said reports before the RFC/SBBJ. It is also a finding of fact that the AO in making the addition has compared the figures of the project report with the actual figures as per the balance sheet as at 31st March, 1997 and not as per the balance sheet as on 31st March, 1998, when the project was fully implemented. It is the claim that figures match with the figures of balance sheet as at 31st March, 1998, whereas the AO considered with the figures as on 31st March, 1997 when even it was under construction.

In our view, the Tribunal came to a correct conclusion and no addition was called for. Merely because a project report shows an estimated figure does not prove that undisclosed investment to the tune of Rs. 36,21,692 was really made by the assessee-respondent. Addition has to be based on proper foundation and cannot be made merely on the basis of such an estimated project report, which one may prepare for diverse purposes and really do not indicate as to actual investment having made by the assessee. Burden under s. 69 is on the Revenue and it failed.

The AO has blindly made addition merely on the basis of project report without bringing further evidence in the shape of say a valuation report which may have been obtained by the AO from its Valuation Officer to indicate prima facie that investment to such an extent was made, then in our view the AO could have been well justified to support its addition based on the project report vis-a-vis the valuation report or any other material evidence. However, nothing is apparent on the face of record as to whether any exercise in this direction was made or not. Therefore, in our view, both the appellate authorities have come to a concurrent finding of fact based on appreciation of evidence on record and no substantial question of law can be said to arise out of the impugned order as it is entirely based on finding of fact. The first question shall be only of academic interest and would be examined in an appropriate case. Consequently, the appeal being devoid of merit is hereby dismissed in limine.