* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 06.01.2017
Pronounced on:11.04.2017
+ ITA 478/2007, C.M. APPL.6708/2007
ANUJ CHAWLA ..... Appellant
versus
COMMISSIONER OF INCOME TAX, NEW DELHI ..... Respondent
+ ITA 1246/2007
COMMISSIONER OF INCOME TAX ..... Appellant
versus
CENTAUR IMPEX P. LTD. ..... Respondent
+ ITA 479/2007, C.M. APPL.6717/2007
CENTAUR IMPEX P. LTD. ..... Appellant
versus
COMMISSIONER OF INCOME TAX, NEW DELHI ..... Respondent
+ ITA 495/2007, C.M. APPL.6783/2007, 6784/2007 & 10687/2008
ASHOK CHAWLA ..... Appellant
versus
COMMISSIONER OF INCOME TAX, NEW DELHI ..... Respondent
+ ITA 817/2007
COMMISSIONER OF INCOME TAX ..... Appellant
versus
ASHOK CHAWLA ..... Respondent
+ ITA 988/2007
CENTAUR HELICOPTER SERVICES P. LTD. ..... Appellant
versus
COMMISSIONER OF INCOME TAX ..... Respondent
+ ITA 822/2008, C.M. APPL.9763/2008
VIJAYA RAJAGOPAL ..... Appellant
versus
COMMISSIONER OF INCOME TAX, NEW DELHI ..... Respondent
ITA 478/2007 & connected matters Page 1 of 62
+ W.P.(C) 4299/2007. C.M. APPL.8052/2007, 4030/2008, 3249/2009,
11752/2010, 2091/2014, 356-57/2017 & 499/2017
ASHOK CHAWLA & ORS. ..... Appellants
versus
DIRECTOR OF INCOME TAX & ORS. ..... Respondents
+ W.P.(C) 7962/2009, C.M. APPL.4413/2009
ASHOK CHAWLA ..... Appellant
versus
COMMISSIONER OF INCOME TAX ..... Respondent
+ W.P.(C) 3517/2011
ASHOK CHAWLA ..... Appellant
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through : Sh. Roopchand, Advocate, for Sh.
Ashok Chawla.
Sh. Ankit Swarup and Ms. Tanya Swarup,
Advocates, for applicants, in C.M. Appl.356-
57/2017.
Sh. Ashok. K. Manchanda, Sr. Standing Counsel,
for Income Tax Department, in Item Nos. 1 to 10.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.K. GAUBA
MR. JUSTICE S. RAVINDRA BHAT
%
1. This batch of appeals under Section 260-A of the Income Tax Act
("the Act" hereafter) and writ petitions arise from scrutiny assessments made
pursuant to a search and seizure operations conducted in 1995. The assessees
are aggrieved in one batch of matters; the Revenue claims to be aggrieved, in
two appeals. The essential facts are narrated below, after which individual
grounds urged in the various appeals and writ petitions would be dealt with.
ITA 478/2007 & connected matters Page 2 of 62
2. The main assessee/appellant, Ashok Chawla (hereafter called by his
name) had served in the Indian Army from which he retired in 1984 and
went on to found M/s. Centaur Helicopter Services (P) Ltd (hereafter
"Centaur") with him and his wife as its directors. Centaur was an authorized
dealer of M/s. Schweizer Aircraft Corporation USA ("Schweizer" hereafter)
for purchase and sale of its helicopters in India. Ashok Chawla was also
consultant to M/s. Capitex Impex (P) Ltd. for manufacture of leather goods.
The Revenue had claimed or rather suspected that Ashok Chawla used to
earn income from defense deals and contracts, which he did not account for
in his income tax returns and he instead claimed to be an army pensioner and
salary income earner from Centaur. On 31st August, 1995, a search and
seizure operation was carried out by the Revenue in his premises as well as
those of his companies, concerns and individuals associated with him. This
resulted in seizure of several documents, cash and other materials.
3. Ashok Chawla and others who received notices, pursuant to the
search, filed block returns for the period AY 1985-1995. Ashok Chawla
declared undisclosed income to the extent of `39,86,916/-. In the assessment
order by the Assessing Officer (AO), the income assessed for the block
period that was brought to tax was `17,77,29,193/-. Ashok Chawlas appeals
to the Income Tax Appellate Tribunal (ITAT) failed; it dismissed his appeals
by the impugned order, dated 26th December 2006. That impugned order is
the subject matter of challenge in ITA 495/2007. Initially, the validity of
search proceedings had been challenged in a writ petition, W.P.(C)
1518/1997, which was disposed of by an order dated 1 st August, 2001, which
expressed the opinion that since the issues concerned were factual, the ITAT
ought to consider and return findings on them. The ITAT, in its impugned
ITA 478/2007 & connected matters Page 3 of 62
order, held that it lacked competence to examine the validity or legality of
search and seizure. Therefore, Ashok Chawla, in a freshly filed writ petition
(W.P.(C) 4299/2007) questions the validity and legality of search and seizure
proceedings, on diverse grounds, including that it was motivated by legal
malice, mala fides, tainted inasmuch as it was premised upon the information
of a former partner and his ability to bring about pressure, and technical
grounds such as improper search in the absence of proper witnesses and
lastly, that the assessment order was made by the officer who searched the
premises. Ashok Chawla has also challenged the order of the ITAT,
declining his application for rectification of its main order in his appeal (in
his application MA 57/Del/2007 before the tribunal) by filing W.P.(C)
3517/2011.
4. The additions that were the subject of Ashok Chawlas appeals were
discussed in relation to Ground Nos. 5 to 16. These were on account of
various materials seized during the search and seizure operations listed
below:
(1) A slip of paper which contained the description of an account (No.
53745) with Discount Bank Trust Co, Switzerland (Discount Bank, for
short);
(2) Visiting card of Dr. VRS Fricker, Vice President of Discount Bank;
(3) Telephone bills containing a record of several calls between Ashok
Chawla and Dr. Fricker;
(4) A typed telex addressed to Fricker which instructed the latter to
transfer US $ 40,000 to an account with National Westminster Bank and for
also instructing him to transfer US $ 10,000 to Anuj Chawla, son of Ashok
Chawla. The document sought confirmation within an hour.
ITA 478/2007 & connected matters Page 4 of 62
(5) A request for bank guarantee (dated 4th October, 1994) made to
Discount Bank, in relation to an account number (No. 53745 ZV) clearly
stated on the face of the document, which requested for issuance of a
guarantee for GBP £100,000 favouring Duncan Lawry Ltd, London securing
all accounts and securities held with the bank. The relevant portion of the
said letter reads as follows:
"In this connection, I/we assume entire responsibility towards
you for this co-operation as well as for all consequences of any
kind or nature which may arise for you due to the issuance of
this guarantee of your surety."
(6) Documents showing that `1,15,72,668/- was paid for by Ashok
Chawla, to purchase two Schweizer helicopters. This included a letter dated
31.08.1994 by Rocky G. Peter of Schweizer Corporation, USA addressed to
the Director General, Civil Aviation, showing that they had been sold to
Centaur. The letter stated that Schweizer had "recently sold two Schweizer
300C/Model 269 C helicopters to Centaur Helicopter Services in Delhi.."
and that the helicopters were manufactured under production certificates of a
particular type or standard which was acceptable in India. There was another
letter, i.e of Micheal D. Oakle of Schweizer who was its treasurer, dated 3 rd
January, 1995 which indicated that the two helicopters were sold to Centaur
for a consideration of US $ 196,166.10 pursuant to its purchase order and
that at the latter's request, it was being held by the said seller at its
(Centaurs) risk at its premises; further the letter stated that the title had
passed to the said buyer, i.e. Centaur.
(7) A letter dated 30.08.1994 from Centaur stating that payment would be
made to Schweizer between 5th and 9th September, 1994. The letter stated
ITA 478/2007 & connected matters Page 5 of 62
that the invoice would have to be changed to that of United India Airways
Ltd. The assessee who had written the letter, stated further that:
"Also, a provision will have to be made to show that the source
of funds for these Helicopters which I am claiming that these
Helicopters are being brought on lease and therefore quarterly
payments have to be repaid to you through the lease charges till
the full payment along with interest of 7% has been made."
(8) Documents showing Ashok Chawlas possession of a property at 105,
Queens Road, Reading, Berkshire, London also showed renewal of insurance
in respect of certain assets in that flat; further a letter by Ashok Chawlas
wife to HUDA, disclosing that he lived in that flat, were also found and
seized.
5. The assessee/Ashok Chawla's explanation was that the account
number with Discount Bank, Switzerland was of M/s. Capitex of which he
was only a consultant. The AO and the ITAT rejected this argument by
saying that Swiss bank accounts were inherently kept confidential and that a
consultant could not be expected to be in possession of details; furthermore,
Ashok Chawla's frequent telephonic conversations with the Vice-President
of the bank painted another picture. In addition, the bank had been asked to
issue a guarantee in relation to that account. Another letter asking for transfer
of funds from that account to other accounts, such as that of his son, were
found. The assessee had also argued that a search party had planted
documents - a plea that was rejected by the Tribunal. The Tribunal held that
there was no material or correspondence found or disclosed showing linkage
of the account with M/s. Capitex or any documents showing authorisation
from M/s. Capitex to issue bank guarantees with respect to two Schweizer
helicopters. The assessee had argued that M/s. Capitex had made the
ITA 478/2007 & connected matters Page 6 of 62
payments. The AO and the Tribunal relied upon the documents of Rocky. G.
Peter of Schweizer and the Treasurer of Schweizer USA's letter dated
03.01.1995, which confirmed that helicopters were sold to the assessee. The
assessee's letter asking for change of invoice favoring United Airways India
Ltd. was also relied upon. The assessee's explanation was that he had an
office in Moscow maintained by Allan Saltmer, Director of M/s. Capitex,
and his business associate and that he was visiting Moscow at the behest of
the principal, i.e. M/s. Capitex and Allan Saltmer for which he would be
given money was rejected. The Tribunal said, "in case Mr. Saltmer had only
occasionally given money for payment on his behalf, how a detailed and
elaborate account of all expenses were found from the premises of the
assessee. No logical explanation is coming forth. Moreover, no reliable and
authenticated evidence has been produced showing that the office had been
maintained by Saltmer and that expenses were declared in his account."
6. With respect to the London flat, the assessee argued that the property
was the rented office of M/s. Capitex and relied upon a letter. Such material
was held to constitute ex-facie evidence to rebut the presumption that the
assessee in fact owned the property and had paid substantial amounts
towards it. The ITAT concluded that Ashok Chawla's explanation was an
attempt to fabricate an explanation for the seized documents.
7. In Ground nos.7 and 8, the assessee had challenged the addition of
`53,84,258/- explaining that the source of money was his son's income
which he earned when he worked as a flight and ground instructor. The
ITAT examined the appeal of Sh. Anuj Chawla, son of Ashok Chawla and
held that the additions made to his tax returns were correctly done. The
amounts were deleted by the ITAT on protective basis. The next ground, i.e.
ITA 478/2007 & connected matters Page 7 of 62
No.8 related to an addition of `51,12,392/- in the bank guarantee of M/s.
Centaur Impex on 01.11.1994, a transfer from Centaur Helicopters. This was
found to be a foreign remittance by the AO, wrongly credited in the account
of Centaur. According to Ashok Chawla, the source was an advance received
from Centaur Impex by Thrustom Telecom UK for garment export. The
addition of this amount was upheld in the case of Centaur Impex. Therefore,
the protective assessment in the case of Ashok Chawla was deleted.
Likewise, in respect of `40,65,086/- which was a credit in the account of
Centaur Impex on 20.02.1995, the explanation given was that the source of
deposit was an advance from M/s. Aviv Exports Moscow for export of
leather jackets worth US$ 130,000 in terms of the contract dated 30.09.1995.
The AO held that the explanation was unsatisfactory and added it to the
account of Centaur Impex on substantive basis and to the account of Ashok
Chawla on protective basis. This was again like in the case of previous
accounts, deleted.
8. After analyzing the documents and materials seized, the findings of
the AO and the submissions of the parties, the ITAT rendered specific
findings with respect to each heads of income and addition in para 20.1 to
20.7.7. It rendered its decisions with respect to certain miscellaneous items
and grounds between para 21.1 to 21.9. The Tribunal concluded (para 7.10
and 20.3) that M/s. Capitex was only a front put up by Ashok Chawla to
explain various transactions and could not be given any importance. It
upheld the rejection of his explanation with respect to purchase of
helicopters on behalf of M/s. Capitex. The ITAT therefore, upheld the
findings that Ashok Chawla was bound to explain the source of payment -
which he had not given satisfactorily. The discount allowed, i.e. $ 85,364
ITA 478/2007 & connected matters Page 8 of 62
was held to be unsustainable and was therefore, deleted by following the
reasoning that such amount merely reduced the value of the helicopter of
which the assessee was the purchaser. Likewise, the claim of reimbursement
of `1,37,79,186/- from Rakesh Gupta for which the Ashok Chawla gave an
explanation was held to be unsatisfactory. This amount included a sum of
`54.78 lakhs on account of payment to the helicopters and `29,51,186 on
other counts. Reliance was placed upon payments made by M/s. Capitex -
clear from a letter dated 08.03.1995 and MOU dated 05.07.1993 - both of
which had been seized. These showed that M/s. Capitex had agreed to pay
US $ 1,66,000 to Swidnik. The ITAT therefore held that addition was un-
justified only on the basis of statement of Rajesh Gupta. However, the ITAT
also returned findings:
"20.4 .........On careful consideration, we find that addition
has been made not only on the basis of statement of Shri Rakesh
Gupta. Details of these expenses had been found from the
premises of the assessee. There is no dispute that the seized
documents showed payment of Rs.5478000/- for purchase of
Sokol Helicopter. The assessee is therefore, required to explain
the source of these payments by a reliable evidence. As regards
the letters from M/s. Capitex, we have already examined this
aspect in paras 7.10 of this order and concluded that capitex is
only a front company put up by the assessee to explain various
transactions which had been seized. Several blank letter heads
of the said company were found from the premises of the
assessee. As mentioned in the earlier part of the order, a Swiss
bank account number was also found in respect of which the
assessee had issued a guarantee letter, which can be done by
only an owner but the assessee had procured letters from
Capitex claiming that the account belonged to them. The
assessee is either the owner of the Capitex or the latter had
been put up as a front to explain huge unaccounted money
earned through different deals. The letters from Capitex cannot
ITA 478/2007 & connected matters Page 9 of 62
therefore, be accepted as reliable evidence. No credible
evidence such as copies of bank account/audited accounts has
been produced regarding the source of payment for purchase of
Sokol Helicopters by anybody else. The explanation of the
assessee regarding source of payment has therefore, been
rightly rejected by the AO"
9. The ITAT further upheld the commission at 15% not disclosed by the
assessee from the documents seized, on account of supply of Kraz 260 trucks
to Ukraine - `24,67,50,000/- and a contract for MI platforms for a
consideration of US$ 50,40,000/-. The addition made in these two accounts
was `44,21,2500/- and `2,41,92,000/-. The addition made on account of
reimbursement of expenses from Rakesh Gupta was `29,51,186/-.
10. On an overall analysis, the ITAT sustained the addition of
`7,37,00,000/- as against addition of `14,98,66,417/- made by the AO which
was the subject matter of Grounds 5, 6, and 10 to 16. The other substantial
amounts brought to tax was ` 4 lakhs seized from the locker of ND Vault,
Defence Colony - `2,36,000/- and `25,00,000/-. On these, the findings of
ITAT are as follows:
"21.7 We have perused the records and considered the rival
contentions carefully. The explanation of the assessee
regarding the cash of Rs.4 lacs found from locker no.1403 is
not convincing. It is not understandable as to why the assessee
will withdraw money from bank account at different points of
time and keep it in cash with his father to be deposited later in
the locker. The money found in the locker was also found to be
in the same denomination of Rs.500/- and serially numbered.
The explanation has, therefore, been rightly rejected by the AO
and the addition made on this account is upheld. As regards the
cash of Rs.20,000/- found from locker no.6003, the amount
being small, the explanation of the assessee in our view has to
ITA 478/2007 & connected matters Page 10 of 62
be accepted. The addition made on this account is accordingly
deleted.
21.8 As for the liquor bottles, it is an undisputed fact that
large quantity of liquor had been recovered during the course
of search. The explanation of the assessee that the same were
bought on the visits abroad or gifted by friends abroad and
brought to India but his pilot son, is not supported by any
evidence and has to be rejected. However, as we have held that
the assessee was engaged in the business of defense and other
deals at international level on a large scale, the consumption of
liquor has to be considered as normal business expenditure in
connection with such deals. As we have already determined the
income from such deals, no separate addition on account of
such expenses is required to be made. The addition made on
this account is, therefore, deleted.
21.9 The seized documents have shown that the assessee
contributed a sum of Rs.25 lacs in cash towards the setting up
of the company - Centaur Impex. The explanation by the
assessee is that the contribution has been made through
Centaur Helicopters and the method adopted was to have cross
holdings of shares worth Rs.25 lacs in two companies and the
same money was shown as capital in both the companies.
However, this does not explain the source of investment made
by the assessee. The claim of the assessee that the peak amount
was only Rs.5 lacs, has not been examined by the AO. In our
view, this aspect requires fresh examination. We, therefore,
consider it appropriate to restore the matter to the file of the
AO for passing a fresh order after examining various details
given by the assessee and after allowing opportunity of being
heard to the assessee."
11. Since these appeals and writ petitions were pending for a long time
and had been repeatedly adjourned at the request of one or the other party,
and on account of the Court's inability to devote substantial time, questions
of law had not been framed. Therefore, with the assistance and consent of the
ITA 478/2007 & connected matters Page 11 of 62
learned counsel, the appeals were taken up. The following questions of law
are formulated in ITA 495/2007, W.P.(C) 4299/2007, W.P.(C)7962/2009
and W.P.(C) 3517/2011.
(i) Whether there was legal justification for the search and seizure
operations;
(ii) Did the ITAT fall into error in concluding that there was no infirmity
in the framing of the assessment by an officer who was involved in the
search and seizure operations?
(iii) Whether Ashok Chawla was given sufficient opportunity during the
assessment proceedings;
(iv) Whether the additions sustained by the ITAT are justified or are
unreasonable or perverse.
First question: Legality of the search and seizure operations
12. Attacking the validity of the search, Ms. Premlata Bansal, learned
senior counsel relied upon the decision of the Allahabad High Court in
Shyam Jewellers & Anr. v. Chief Commissioner of Income Tax 1992 (196)
ITR 243 which held that there should be sufficient objective material to
believe that a person is in possession of money, bullion or jewellery to
record satisfaction under Section 132 of the Act, justifying a warrant for
search of the premises. Similarly, learned counsel relied upon ITO v. Seth
Brothers 1969 (74) ITR 836 (SC) for a similar proposition. The Supreme
Court had also observed that the provision cannot be construed as offering
arbitrary authority upon the revenue officers. The Commissioner or the
Director should have reason to believe consequent to information that
statutory conditions for exercise of power to search exist. The reasons should
be recorded and should precede the authorisation. If and only if the officer
ITA 478/2007 & connected matters Page 12 of 62
has reason to believe that there are books or accounts otherwise useful for or
relevant to proceed under the Act would be justified in authorizing the search
and seizure of such material. The court had then stressed that, "since by the
exercise of the power a serious invasion is made upon the rights, privacy and
freedom of the tax payer, the power must be exercised strictly in accordance
with law and only for the purpose of which the law authorises it to be
exercised".
13. Learned senior counsel for the assessee also relied upon the judgment
in HL Sibal v. Commissioner of Income Tax 1975 (101) ITR 112 (P&H), to
say that information is not something which is part of the existing record but
something outside of and new. Furthermore, such information should be
relevant for concluding a satisfaction that they would be material, in the
course of an assessment. Learned counsel relied upon the observations that if
an assessee has been regularly producing his books of accounts before the
authorities who is accepting those books and has been maintaining in the
proper course, it would be unjustified use of power to issue search warrant
for production of those books of accounts unless information is to the effect
that he has been keeping some secret books as well. The judgment in Harnet
Singh v. UOI 1993 04 ITR 334 (P&H) and CIT v. Davy Ashmore India Ltd.
1982 137 ITR 456 were relied upon.
14. It was furthermore submitted that the post facto justification in the
form of findings concluded has been sufficient to justify a search, would be
of no avail. Learned senior counsel stressed here that the precondition for
exercise of the power is the reasonable plea as to the existence of material
and the recording thereof in the official file, as a necessary step towards the
issuance of the warrant. Learned senior counsel submitted that in the facts of
ITA 478/2007 & connected matters Page 13 of 62
this case, the entire effort of the Revenue was to justify its unlawful search in
the premises of the assessee and his relatives and associates by such post
facto justification. It was submitted that search and seizure proceedings were
in any event motivated by malice on account of the unlawful pressure that
was sought to be put upon Ashok Chawla at the behest of one of his
associates who was closely related to an Income Tax Commissioner. Since
he did not budge and did not accede to the demands made, the premises were
unlawfully searched. In this his previous associate, Sh. Rakesh Gupta
appeared to have a prime involvement.
15. It was argued on behalf of the assessee by learned senior counsel that
one concern, M/s. Mals Deoghar Airlines Limited was incorporated in India,
headquartered in Delhi in 1992 by 7 individuals, four of whom were Indians
and three Russians with authorized share capital of `1 crore. The initial share
capital issued was only `7000/- in August 1992. The company was later on
taken over by Rakesh Gupta; Ms. Sudesh Kapila, wife of KK Kapila, IRS;
Sh. Vinod Jain and Sh. Yogesh who were appointed as Directors in various
companies in 1993. The company showed its balance sheet with paid up
capital of `50,07,000/- and share capital money of `31,00,62,500/-. The
assets showed aircraft valued at `31,00,62,500/-.
16. It was argued that Rakesh Gupta approached Ashok Chawla with the
balance sheet and induced him to join the Airlines and acquire 50% of its
issued paid up share capital. He therefore, invested `22,50,000/- (` 5 lakh
shares @ ` 4.5 per share). Ashok Chawla and his wife later joined the Board
of Directors in 1994. In 1995 he became aware that the aircraft worth `31
crores shown in the balance sheet never existed and was owned by a Russian
company, being Mals Airways and that the share application of `31 crores
ITA 478/2007 & connected matters Page 14 of 62
shown in the balance sheets were bogus. Ashok Chawla, therefore, submits
that he was cheated by being induced to invest `22.5 lakhs in Mals Airways.
Yet another company, i.e. United India Airways Ltd. was incorporated in
1993. Sudesh Kapila; Suresh Batra and Rakesh Gupta took over this
company from him in 1994. On 07.09.1994, an agreement was entered into
between Rakesh Gupta and Ashok Chawla by which `21 lakhs was invested
by Ashok Chawla in the company, i.e., United India Airlines Ltd. towards
share capital during the period November 1994 to March 1995. The assessee,
however, was never consulted. Thus, Ashok Chawla invested `43 lakhs in
these two companies. He later became aware that both the companies were
non-functional and was induced to make substantial investments in them by
Rakesh Gupta.
17. It was submitted that Rakesh Gupta and K.K. Kapila agreed to pay
`1.34 crores to Ashok Chawla. This, however, did not materialize and on
06.07.1995, the assessee agreed to pay `25 lakhs to K.K. Kapila and Rakesh
Gupta who were to leave the two companies. As the amounts were to be paid
by 30.08.1995, Ashok Chawla could not arrange for the payment but instead
subjected to write off his premises on 31.08.1995. Relying upon these
allegations, it was urged that the search was dented by mala fides and
motivating complaints in the form of information engineered by K.K. Kapila
at the behest of Rakesh Gupta.
18. It was submitted that the appellant cannot be left remediless and that
there has to be proper adjudication of these facts, i.e. the manner in which
warrant was issued and reliance on information that preceded it. Though
extensive arguments were made on behalf of the assessee, the ITAT declined
to return a finding on account of its special bench ruling in Promam Limited
ITA 478/2007 & connected matters Page 15 of 62
v. DCIT 2005 (95) ITD 489. It was submitted that the search in the present
case was used as a claw to damage the assessee's business reputation and
goodwill and to wreck vengeance and to destroy him. Furthermore, the
search itself was dented on account of various irregularities during the
process such as planting of evidence in the form of letters, documents,
illegalities in the form of absence of independent witnesses, forcible entry
into the premises of Ms. Vijaya Rajagopal etc. Learned counsel submitted
that despite requests, the assessee had not been permitted and denied access
to any inspection of the documents seized. Therefore, they in fact make any
meaningful submissions to utterly unjustified inferences and findings based
on conjectures, drawn by the Revenue, which formed the basis of AO's
decision.
19. Learned counsel submitted that such violation of principles of natural
justice vitiates the order and relied upon L.R. Gupta v. UOI 1992 194 ITR
32. Learned senior counsel relied upon the letters dated 22.11.1995,
26.08.1996 and 17.09.1996.
20. In the course of hearing, the Revenue had produced copy of the
documents and material as well as file notings which formed the basis for the
warrant in a sealed cover, no doubt, a perusal of the impugned order of the
Tribunal establishes that it declined to pronounce upon the validity of the
search proceedings on account of its previous special bench ruling as well as
the judgment of this Court in M.B. Lal v. CIT 279 ITR 298. No fault
therefore, can be found with the impugned order.
21. At the same time, this Court has to nevertheless examine
independently whether the search proceedings were indeed justified having
regard to the entirety of the circumstances. Since elaborate submissions were
ITA 478/2007 & connected matters Page 16 of 62
made in this regard, in fact the petitioner had approached this Court earlier
by filing W.P.(C)1518/1997, which was subsequently disposed of. The
validity of the warrant and the search proceedings is the subject matter of
challenge in W.P.(C) 4299/2007.
22. It is sufficient to record that the material, which led the Director of
Income Tax to authorise search, was based upon information supplied. These
spoke of substantial assets held by the assessee, which was not accounted for
as well as receipts, which were not declared. The assessee's principal
submissions with respect to reliance upon such material primarily stems
from Ashok Chawla's narrative of his being duped by Sh. Rakesh Gupta and
Ms. Kapila According to him, the inducements extracted through
investments in M/s. Mals Airways and M/s. United India Airways Ltd. were
duds and that he sought a return of that money when it was discovered that
he was duped. Apparently the two individuals agreed to return the amounts
and the sum of `1.34 crore was initially agreed. Later they expressed their
inability to do so and a counter offer was made by Ashok Chawla to buy out
their shares from the two companies by acquisition and pay them `25 lakhs
by 30.8.1995. As far as the narration goes, the argument is plausible. The
difficulty, however, for this Court to accepting these submissions is that such
contentions is entirely unsubstantiated. To compound the matter, there are
internal contradictions as well. If in fact, M/s. Mals did not possess the assets
declared, i.e the form of aircraft valued at over `31 crores, Sh. Ashok
Chawla was undoubtedly justified in asking for the return of the money.
Thus, his argument with respect to the counter offer for `25 lakhs to acquire
the shareholding of the two companies begs an explanation. In other words,
if the entire corporate entity is a dud and in fact a shell company (as Mas and
ITA 478/2007 & connected matters Page 17 of 62
United India Airways Ltd. were, allegedly according to the assessee Ashok
Chawla) in which he had substantial holding, there was no explanation
forthcoming as to why after asking for return of that money for exiting from
that company, he wished to acquire the entire shareholding of the company.
Furthermore, if indeed, the assessee wished to exit from United India
Airways Ltd. (of which he was a substantial shareholder) there is no
explanation from him as to why he wrote - which he did, a letter to
Schweizer Helicopter, requesting that the invoice for the helicopter be made
out in the name of the United India Airways. Therefore, this Court is un-
persuaded in regard to the arguments that the motivation for the complaint
that led to the search were on account of some business falling out or
differences between him and his earlier colleagues. As to why in fact the
submissions of the assessee that search was at the behest of Ms. Kapila's
husband since he was powerfully placed in the Income Tax department at
that stage, did not appear to be well founded. In fact Mr. Ashok Chawla was
well aware of Ms. Sudhir Kapila was the wife of senior Income Tax official
despite which he did not involve himself in the business of two companies
where he invested. More importantly, the allegation that Sh. K.K. Kapila
brought pressure and used his official position in an unfair manner can no
doubt be made; yet it has to be established by credible evidence. In this case,
there is no evidence whatsoever - either direct or in the form of letters or
material, giving Ms. Sudhir or her husband, or circumstantial evidence.
Having regard to these factors, the Court holds that the plea that the search
was on account of motivated allegations is without substance.
23. It was argued that Ravi Kumar, one of panchas at 2 Under Hill Road,
Civil Lines, New Delhi, was shown as witness at C-517, Defence Colony
ITA 478/2007 & connected matters Page 18 of 62
garage where search was started on 31.08.1995 at 08.10 PM and was
concluded on 01.09.1995 in the morning at 4.30 AM. Counsel for the
asseessee argued that in his affidavit, Ravi Kumar stated that the search at
Civil Lines was started at 08.00 AM and concluded at 09.55 PM on
31.08.1995. The search of Defence Colony was at about 11.00 PM after
conclusion of search at Civil Lines which is at a distance of 20 KM approx.
Thus the search was already started 03 hours prior to his reaching at Defence
Colony. Mr. Ravi Kumar was not aware of the activities which took place
between 08.10 PM to 11.00 PM. This wholly improbabilizes the search
proceedings. Counsel next submitted that the raiding party had taken ingress
by forcing the locked premises of Defence Colony Garage open, when the
keys were already available with Ms Vijaya Rajagopal, the assessees
manager, who was present at the relevant time at 2, Under Hill Road, Civil
Lines, Delhi where the search and seizure operation was being carried out
simultaneously. By the time, Ms. Vijaya Rajagopal reached Defence Colony
premises, the search party had already bunched-up all the papers and made
Vijaya to sign on the dotted lines. These irregularities, said counsel were
committed deliberately so as to plant certain documents with impunity
without any check and control either by the panchas or by Ashok Chawlas
representatives.
24. Rule 112(6) of the Income Tax Rules requires the authorized officer to
call upon two or more respectable persons to witness the search. The
Panchnama drawn at C-517, Defence Colony, shows two witnesses: Mr.
Ravi Kumar and Mr. D.S. Mann. Mr. Ravi Kumar reached at the venue after
three hrs of commencing the search. Moreover, D.S. Mann was allowed to
go to sleep and was called only in the morning when the search was going to
ITA 478/2007 & connected matters Page 19 of 62
be wound-up. It is argued that this renders the search illegal and also prima
facie provided opportunities to the search party to plant documents handed
over by Shri Rakesh Gupta to ADI Shri D R Chaudhary.
25. Counsel stated that it is evident from the panchnama at Defence
Colony Garage that the raiding party had not offered themselves for personal
search nor was it declined, obviously because no one was present to do so,
on behalf of the assessee. This again is a circumstance, suggestive that the
raiding party enjoyed complete freedom in the matter of planting of the
documents.
26. It was urged that due to harassment at the instance and motivation of
Rakesh Gupta, Petitioner lodged complaint against him before IB, CBI and
Police Dept. He also filed civil & criminal case against him i.e. Civil case
for recovery of money introduced in ,,Mals & ,,United & criminal case for
cheating him. Facing with these trials, Sh. Rakesh Gupta offered
compromise through Court, according to which he offered demand draft of
`1 lakh & two post dated cheque for `45 lakhs. During the period Rakesh
Gupta also filed an affidavit to the effect that he handed over a slip of hand
written papers about a Discount Bank with Account number and its address
to the revenue officials. This slip was planted in the seized documents
during search. It is not identified -either by witnesses or by the authorized
officer or Chawlas representative.
27. It was also urged that no one was present at E-6, Anand Niketan, New
Delhi, except one employee - Bhagirathi Sibbal, the receptionist. The search
commenced on her arrival at 9 AM; however, the Panchnama stated that the
search commenced at 8 AM. Kishan Lal and Hayat Singh, peons were the
ITA 478/2007 & connected matters Page 20 of 62
witnesses. Mrs. Sibbal and Kishan Lal deposed in affidavits that the search
party did not offer themselves for search.
28. These irregularities, said counsel, were intentionally committed so as
to plant certain documents. The affidavit of Sh. Rakesh Gupta; Mukul Sarin
tape recorded conversation between the assessee, Sh. Rakesh Gupta and Sh.
Anil Kapur S.I. of crime branch, prove the planting of documents. The
respondent denied even the assessees request for inspection of file and
connected material on the basis of which the search was authorized. Thus,
the petitioners are unable to make an effective, meaningful presentation of
the case.
29. At the outset, this court notices that the primary evidence of tape-
recorded conversation, i.e., the tapes, were not produced before the ITAT
during the hearing. The ITAT concluded therefore that such taped
conversation could not be taken as reliable evidence. The "planted material"
contained Swiss bank account particulars and other related documents. The
assessee had relied upon an affidavit of Rakesh Gupta and one Sh. Mukul to
argue that this material had been handed over later. Significantly these
affidavits were of much later vintage. In fact during the course of appellate
proceedings, Ashok Chawla had relied upon an affidavit of Sh. Rajiv Gupta
dated 06.07.2000 which affirmed the contentions of a previous affidavit
dated 10.3.1997. A copy of another affidavit has also been placed on the
record, which too is dated 06.07.2007 in which Rakesh Gupta states, "I have
settled off important disputes/differences with Sh. Ashok Chawla amicably
with the help and intervention of common friends."
30. Now these documents bespeak of a post-search settlement, between
Ashok Chawla and Rakesh Gupta, which appears to have motivated Sh.
ITA 478/2007 & connected matters Page 21 of 62
Rakesh Gupta to have alleged with respect to the planting the material. No
attempt was made during the course of hearing, before the AO or the ITAT
to suggest that the material allegedly planted had not been included in the
inventory or list of items recovered. Furthermore, none of the letters
contemporaneously written by Ashok Chawla, in fact alleged such conduct.
As a result, this Court holds that these allegations like in the case of mala
fides have not been proved. The record also shows that after Chawla lodged
a criminal complaint for cheating, the parties reached a settlement, involving
payment of amounts by Rakesh Gupta. The credibility of the affidavits relied
upon, by Ashok Chawla, in these circumstances is suspect, to put it mildly.
31. As far as the alleged illegalities in the timing of the search, or that it
was improbable that searches took place at two places - argued with certain
vehemence by learned senior counsel, this court is of the opinion that
nothing much turns on these so called infirmities. For one, the factual nature
of these allegations, i.e., as to timing, as to presence of certain pancha or
recovery witnesses, renders it somewhat difficult to substantiate. From a
broader angle, whether the search occurred at 08:00 AM or an hour later, is
left for verification by affidavits signed by the witnesses much after the
event. Their signatures on the panchnamas at the time of the search belie the
affidavits. These arguments at best could establish some irregularities, for
which the Revenue might have had a perfect or plausible explanation, if
made in time. However, even if accepted at face value, such facts cannot
undermine the search, the recoveries effected or in any case and the validity
of the block assessments. The assessee/Ashok Chawlas submissions in this
regard are therefore, rejected.
ITA 478/2007 & connected matters Page 22 of 62
Second question: Did the ITAT fall into error in concluding that there was
no infirmity in the framing of the assessment by an officer who was involved
in the search and seizure operations
32. The assessees argument on this aspect is that Mr. D. Roychowdhary,
who was a party to the search and seizure proceeding, was also tasked or
authorized to complete the assessment. This, in the assessees submission,
displayed a conflict and also resulted in a bias which vitiated the assessment
order itself. The Revenue resisted this argument, successfully, and placed
reliance on the ruling of the Supreme Court in Union of India v Vipin Kumar
Jain 260 ITR 1 (SC). In that case, an argument identical with the one
advanced by the appellant/assessee here was accepted by the High Court.
The Revenues appeal was allowed by the Supreme Court, which observed,
in its judgment as follows:
"6. In our view, this appeal must be allowed. The several
sections which have been cited by the appellants would show
that the Assessing Officer has, either directly or by virtue of his
appointment or authorisation by a superior authority under the
Act, been given the power of gathering information for the
purposes of assessment. The mode of gathering such
information may vary from the mere issuance of a notice under
Section 142 to the more intrusive method of entry and search
envisaged under Section 133A and 133B and seizure
under Section 132. The appellants are also correct in their
submission that in the absence of any challenge to any of these
provisions, it was not open to the High Court to have disabled
the Assessing Officer from discharging his statutory functions.
What the High Court has done is to read limitations into the Act
and to qualify the jurisdiction of the Assessing Officer and the
powers of the authorities empowered to appoint the Assessing
Officer as an authorised officer under Section 132 without any
foundation for such conclusion being laid in any manner
whatsoever by the writ petitioners.
ITA 478/2007 & connected matters Page 23 of 62
7. Apart from the absence of any challenge to the provisions
of the Act relating to the jurisdiction of the Assessing Officer to
carry out the search under Section 132 subject to his being
appointed as an authorised officer thereunder, we are of the
view that there is no question of imputing or presuming a bias
where action is followed under the section. The Assessing
Officer is required to assess the income on the basis of facts as
found. Such finding may be through any of the provisions
referred to above. The only limitation on his drawing a
conclusion from the facts as found is the requirement of
allowing the assessee an opportunity of explaining the material.
Even though it could be said that in a sense since the Assessing
Officer was acting on behalf of the Revenue, in discharging the
functions as an Assessing Officer, he was a party to the dispute,
nevertheless there is no presumption of bias in such a situation.
As said in H.C. Narayanappa v State of Mysore:
"It is also true that the Government on whom the duty to decide
the dispute rests, is substantially a party to the dispute but if the
Government or the authority to whom the power is delegated
acts judicially in approving or modifying the scheme, the
approval or modification is not open to challenge on a
presumption of bias. The Minister or the officer of the
Government who is invested with the power to hear objections
to the scheme is acting in his official capacity and unless there
is reliable evidence to show that he is biased, his decision will
not be liable to be called in question, merely because he is a
limb of the Government."
8. There is nothing inherently unconstitutional in permitting the
Assessing Officer to gather the information and to assess the
value of the information himself. The issue as to the
constitutional validity of a provision which permitted an
examining board not only to hold an inquiry but also to take
action against doctors was raised before the Supreme Court of
United States in Harold Withrow v. Duane Larkin (43 L. Ed. 2d
712). In negating the challenge the court said;
"The contention that the combination of investigative and
adjudicative functions necessarily creates an unconstitutional
ITA 478/2007 & connected matters Page 24 of 62
risk of bias in administrative adjudication has a much more
difficult burden of persuasion to carry. It must overcome a
presumption of honesty and integrity in those serving as
adjudicators; and it must convince that, under a realistic
appraisal of psychological tendencies and human weakness,
conferring investigative and adjudicative powers on the same
individual poses such a risk of actual bias or prejudgment that
the practice must be forbidden if the guarantee of due process
is to be adequately implemented."
9. It is true that there may be cases where the outcome of the
assessment may be influenced by the fact that the raiding
Assessing Officer had himself in the course of the raid been
witness to any incriminating material against the assessee. The
Assessing Officer's decision on the basis of such material is not
the final word in the matter. The assessment order is
appealable under the provisions of the statute itself and
ultimately by way of judicial review.
10. Finally, the courts cannot read in limitations to the
jurisdiction conferred by the statutes, in the absence of a
challenge to the provision itself when the language of the Act
clearly allows for an ostensible violation of the principles of
natural justice including the principle that a person cannot be a
judge in his own cause. In Union of India v Tulsiram Patel, in
recognition of this principle this court held (page 1462 of AIR
1985 SC):
"Not only, therefore, can the principles of natural justice be
modified but in exceptional cases they can even be excluded.
There are well-defined exceptions to the nemo judex in causa
sua rule as also to the audi alteram partem rule. The
nemojudex in causa sua rule is subject to the doctrine of
necessity and yields to it as pointed out by this court in J.
Mohapatra & Co v State of Orissa ."
11. Learned counsel also drew our attention to the fact that the
assessments on the basis of material recovered under Section
132 had to be completed within a period of limitation
prescribed under Section 158 BE (1) (b). The last date for
completion of the assessments in the present case was October
ITA 478/2007 & connected matters Page 25 of 62
31, 2000. The prayer of the respondents for transfer of the case
from the Assessing Officer on October 11, 2000, to a new
Assessing Officer in the circumstances was unacceptable and
the assessment by the said Harinder Kumar was unavoidable
given the limited period left for completing the assessment
proceedings. The High Court has observed that this plea had
not been raised by the appellant. Perhaps the appellants are
correct in submitting that the fact speaks for itself. However, it
is not necessary for us to give any final view in the matter
having held that the sections in the Act impose no limitation on
the Assessing Officer on the authorised officer being the same
person and that it could not be said that action taken pursuant
to such statutory empowerment was coloured, only by reason
thereof, by any bias.
12. Ultimately, the question of bias will have to be decided on
the facts of each case. If the assessee is able to establish that
the Assessing Officer was in fact biased in the sense that he was
involved or interested in his personal capacity in the outcome
of the assessment or the procedure for assessment, no doubt, it
would be a good ground for setting aside the assessment order.
But to hold, as the High Court has that bias is established only
because the authorised officer under Section 132 and the
Assessing Officer are the same person is, in our view, an
incorrect approach."
33. The assessee has, in addition to relying on the circumstance that the
AO was a participant in the raiding party, not placed any other material to
substantiate the allegation of bias. No personal bias or malice or past history
with the said official was alleged, much less proved. In the circumstances,
the ratio in Vipin Kumar Jain (supra) applies. The argument that the
assessment was void on account of bias, therefore, fails and is rejected.
Third question- Whether the appellant, Ashok Chawla was given sufficient
opportunity during the assessment proceedings
ITA 478/2007 & connected matters Page 26 of 62
34. The appellant/assessee alleges that he was denied opportunity to make
effective submissions, inasmuch as he was not given copies of documents
despite repeated requests in that regard. He has placed on the record copies
of four such letters written to Commissioners and even to the Minister of
Finance, voicing his grievances in this regard. The Revenue argues that this
ground was never taken at the earliest point of time, nor even urged before
the ITAT. It claims that the submission with respect to denial of inspection
and opportunity is an afterthought, because no serious ground is urged in the
main appeal, ITA 495/2007. It is only urged in one inconspicuous ground in
W.P.(C)4299/2007. Counsel also points out that in the first writ petition
W.P.(C)1518/1997, the ground relating to denial of natural justice by
denying inspection of seized material was never taken.
35. This court is of opinion that the allegations with respect to denial of
opportunity which resulted in depriving proper defense to Ashok Chawla are
unfounded. At the earliest point of time when he did approach the court, in
1997 (after the assessment order) there was no ground to this effect (in
W.P.(C) 1518/1997). Furthermore, even more significantly no such
complaint was made before the ITAT nor such ground urged. Even in the
appeal before this court, i.e ITA 495/2007, the appellant has not made out a
grievance that such a plea was taken but not considered by the ITAT. These
aspects apart, the court notices that the assessee was aware as to the nature of
the documents seized. If he did want a copy or had been unjustifiably denied
inspection, he had the means and resources to approach this court at the
earliest opportunity- he clearly did not. All these rule out the possibility of
denial of meaningful opportunity. This plea is consequently rejected.
ITA 478/2007 & connected matters Page 27 of 62
Fourth question: Whether the additions sustained by the ITAT are justified
or are unreasonable or perverse.
36. The additions made by AO were sustained partly by the ITAT and
partly set aside. The assessee, Ashok Chawla was granted some relief. In the
present set of appeals and writ petitions, learned senior counsel for Ashok
Chawla urged certain broad submissions, with respect to the additions made.
This court proposes to deal with each one of them.
37. Learned senior counsel argued assailing additions made with respect
to the Swiss Bank account in the Discount Bank, the purchase of helicopters,
commission received in defense contracts and additions on account of
substantial investments in immovable properties. Learned senior counsel
argued that the authorities below, i.e. the AO and the Tribunal overlooked
the materials placed on the record which amounted to reasonable
explanation. First commenting upon the concurrent findings that Capitex was
none other than the assessee's concern, counsel relied upon a letter of 18 th
January 1994 which disclosed that he was authorized by Capitex to carry out
negotiations on its behalf. Learned counsel also relied upon the letter of 14th
August 1995 in terms of which Capitex stated that payments were made by
it, a stand endorsed by Schweitzer U.S.A. Furthermore senior counsel relied
upon a letter of 24th November 1995 by Capitex addressed to the income tax
department in this regard. Lastly, learned counsel relied upon a letter of 16th
December 1996 written to the Commissioner which clarified all the aspects.
38. Ms. Bansal stressed that the significance of these documents was
overlooked and instead the Revenue placed much emphasis on the letters and
copy of the telex recovered and seized from the assessee Ashok Chawla from
his premises. It was stated that the letters relied on by the Revenue were
ITA 478/2007 & connected matters Page 28 of 62
more than adequately explained and the inference drawn was wholly
unjustified.
39. The letter by Capitex was written to the Commissioner of Income tax,
on 16.12.1996; it stated, inter alia that:
" M/s Capitex Limited Picton House, Wargrage Road, Twyford
Berkshire RG1O 9NY, UK is a subsidiary company of M/s Inter
Agraria BV Holland which is a Dutch Company of
International repute and holds 66.5% of Shares of M/s Capitex
Limited. The balance shares (%) is held by Mr. Alan Saltmer.
Mr. Ashok Chawla does not hold any shares of this company in
his name or in the name of any member of his family or his
associates. Mr. Ashok Chawla has been only our consultant and
advisor.
We further state and affirm that the Swiss Bank Account
No. 53745zv with Discount & Trust Company Ltd. Switzerland
does not belong to Mr. Ashok Chawla and as already clarified
and confirmed vide para 5 of our letter dated 24.11.95 referred
to above the account belong to us.
We also affirm and state that no transfer of US$ 40,000
from our aforesaid account or any other account to National
Westminster Bank PLC, LondonUK took place at any time and
similarly no transfer of US$ 10,000 to Mr. Anuj Chawla took
place at any time:
Yours sincerely,
sd/-"
It was also submitted that Capitex had clearly stated, in its letter to the
Revenue, on 26th October 1995 (responding to the latter's letter dated 20th
October 1995 that
"the payment for two Schweizer 300 C helicopters questioned in
your letter were made by Capitex Ltd. and negotiations were
carried out by Centaur Helicopter Services Pvt. Ltd., on behalf
ITA 478/2007 & connected matters Page 29 of 62
of Capitex Ltd., Schweizer company was instructed to provide a
certificate of payment received from Capitex Ltd., and they
have confirmed issuing such certificate."
It was urged, therefore, that the addition made based on the finding that
Capitex was none other than Ashok Chawla's concern and that it used
undisclosed foreign exchange for conducting business, was not warranted.
40. It was argued that similarly, the same letter issued important
clarifications about the Sokol helicopters and other transactions such as the
one relating to bank guarantee. Counsel relied on the following extracts of
the said letter:
"Para 4 : Negotiations for lease of a Sokol Helicopter from
Poland has been carried out with A. Chawla for UJA on our
behalf and payment accordingly made by us vide contract No.
UIA 236.
Para 5 : Mr. A. Chawla was authorized only once to remit
1.5million USD for Mr. Rakesh Gupta of UIA from Ca. Am
Bank of Canada for negotiations and advance payment of 3
Fokkere 50 to be carried by Mr. Kevin Hajha of Capitex Ltd.
and money was never received. Subsequently all his requests
for authorization of any bank guarantee including one for Mr.
lnderjit Singh was denied.
Para 6 : Centaur Impex is the production unit of our subsidiary
leather garment Unit Alderman and regular export shipments
are made according to which payment is made in advance and
on shipments. The details may be obtained from Mr. Patrick
Kerr. Mr. Anuj Chawla, son of Mr. A. Chawla had deposited
his earning with us while in USA for transfer to India which
was done accordingly.
Para. 7 : Consultancy for remittance has been made to Canara
Bank, New Delhi and no other remittance has been made
ITA 478/2007 & connected matters Page 30 of 62
anywhere else. You may obtain the details from Canara Bank,
New Delhi."
41. Learned counsel for the Revenue on the other hand argued that Para
7.10 of the ITAT's impugned order specifically deals with all these aspects.
It was highlighted that the tribunal took note of all the letters relied upon by
the assessee, in this appeal. It was submitted that even though Capitex wrote
some letters to the Revenue, it did not disclose all the materials or other
significant information as to the details of shareholders and the source of
funds of the company but withheld them. Details as to whether the assessee
was a shareholder or a functionary or an investor in Capitex was largely left
unanswered.
42. On the other hand, submitted counsel for the Revenue, the letters
recovered showed decisively that the assessee was in control; he placed
orders. The letter by Rocky. G. Peters and the treasurer of Schweizer clearly
show that the amounts were paid by Ashok Chawla. Besides, if indeed the
deal or contract was between Schweizer the seller and Capitex, the
purchaser, nothing prevented the assessee from securing copies of the
contract, payment remittance details, etc as that would have supported his
stand. Capitex could well have provided this information which would have
proved decisive. It is pointed out that two letters: the first dated 3 rd January,
1995 from Schweizer and the other by the assessee, clinch the matter beyond
any controversy. Counsel for the Revenue relied on the extracts of the said
two letters. The first- dated 3rd January 1995, from Schweizer to Ashok
Chawla, reads inter alia, as follows:
"W sold you a Schweizer Aircraft Model 300C Helicopter on
September 20, 1994, for $196,166.10 pursuant to your
purchase order. There have been no written amendments to that
ITA 478/2007 & connected matters Page 31 of 62
purchase order, nor any oral understanding different from the
purchase order. At your request.we are holding the Schweizer
300C Helicopter at your risk on our premises and title has
passed to you. You have asked us to delay shipment of the 300C
Helicopter so that it may be shipped during 1995.
The product has been sold to you on our normal payment terms
set forth in our invoice 9477928-AC dated September 2, 1994
and there have been no modifications of those terms. The above
aircraft has been paid in full."
The other letter, by the assessee, a copy of which was seized, dated 30 th
August, 1994, reads as follows:
"Also please note that the balance of the money due to you for
both Choppers will be sent between 5" to 9 September. The
delay is purely administrative as import licence has not been
sanctioned which is a customary red tapism, in the Indian
Government channel. Therefore, we may have to change the
invoice to UNITED AIRLINES INDIA PVT LTD. who have
finally joined hands with me to run an 4 Taxi Service. You had
met the gentleman who wanted complete first c/ass sealing
which now I have made it to 50% business and 50% economy.
Also a provision will have to Be made to show the source of
funds for these Helicopters, which I. am claiming that these
Helicopters are being brought on lease and therefore quarterly
payments have to be repaid to you through the lease charges till
the full payment along with interest of 7% has been made."
43. The ITAT's findings in this regard are detailed and the relevant parts
thereof are extracted below:
"The assessee has explained that the account number 53745eZV
with Discount Bank, Switzerland, which was found written on a
slip. of paper recovered from the premises of the assessee,
belonged to MIs. Capitex of which the assessee was only a
consultant. This plea is not supported by the nature of
documents seized. The Swiss Bank accounts are highly
confidential and no one will give the account number to a
ITA 478/2007 & connected matters Page 32 of 62
consultant. Moreover, the assessee was found in regular touch
with the Vice President of the Swiss Bank as was clear from the
telephone bills seized. Visiting card of the Vice President was
also found from the premises of the assessee. A written
instruction signed by the assessee to the bank was also found
asking the bank to issue bank guarantee in relation to the said
account. A letter asking the bank to transfer funds from the said
account to some other accounts was also found. These have
been reproduced in paras 7.3 and 7.4 earlier. Such instructions
can be issued only by an owner. The claim that the bank
guarantee had been issued as per authorization by someone
else is not convincing as seized material do not give any such
indication. Further, why someone should authorize the
assessee, who was not even an employee, to issue bank
guarantee in relation to his account. The claim that these
documents were planted by the search party, has already been
rejected by us vide para5.3.5 earlier. It Is also pertinent to note
that though several documents were found suggesting that the
assessee was the owner of the account, no material or
correspondence was found showing linkage of account with
Capitex nor any document showing authorization from Capitex
to issue bank guarantee, was found. In case, the account
belonged to
someone else, the assessee could have easily established the
same by producing. bank documents or letters from the bank.
But no such evidence has been produced. Further, a last ,,will
dated 15.5.1995 signed by the assessee was also recovered
during search in which the assessee d clearly mentioned that
,,any fixed/movable assets abroad should automatically be
passed on to my son Anuj Chawla, the list of which is known
only to my son. The explanation of the assessee that this was
only draft ,,will and the intention was that in case any
fixe&movib1e asset is acquired by the assessee abroad in
future, the list will be known to his son is not convincing as the
,,will was duly signed and language used in the ,,will clearly
shows that on the day of signing the ,,will, the assessee was
definitely having some fixed/movable asset abroad which was
known only to his son. A copy of this wi1 has been reproduced
ITA 478/2007 & connected matters Page 33 of 62
latter in para 20.7. 1 . Considering the entirety of facts and
circumstances such as recovery of Swiss Bank account number,
the manners in which written instructions were given to the
bank to issue bank guarantee charging the said account, the
Will mentioned above and other material on record mentioned
earlier, it will be quite reasonable to conclude that the account
either belonged to the assessee or the assessee was the
beneficial owner of the account. An agent of the account holder
could not deal with the
account in the manner noted above.
7. 11 The assessee has also explained that two Schweizer
helicopters had been purchased on behalf of Capitex who had
made the payment of Rs. 11572668/- But the documents seized
which have been mentioned in paras 7.6 to 7.8 earlier do not
support the claim. The seized letter dated 31.8.94 written by
Rocky G Peter of Schweizer USA mentioned in para 7.6 clearly
shows that the helicopters had been sold to Centaur Helicopter
Services, a group concern of the assessee. The letter dated
3.1.1995 from the treasurer of Schweizer Aircraft Corpn.
mentioned in para 7.7 earlier also confirms this. In the said
letter, it was clearly mentioned that the helicopters had been
sold to the assessee. Further the letter dated 30.8. 1994 from
the assessee addressed to Paul Schweizer/Rocky Peter of
Schweizer Aircraft Corpn. mentioned in para 7.8 clearly
mentioned that the payment will be made between 5-9 Sept
1994. Ii was also mentioned that invoice may have to be
changed to United Airlines India Pvt. Ltd.
The assessee in the said letter further showed his concern as to
how transaction of sale should be reflected as a lease to show
the source of
fund for these helicopters and wanted to show it as quarterly
payments to be repaid through the lease charges till the full
payment along with interest 7% had been made. The language
of the aforesaid letters clearly shows that the helicopters had
been ordered and purchased by the assessee for himself for his
companies fully controlled by him.
It also shows that it was the assessee who had arranged the
funds because one of the letters talks of changing the invoice
ITA 478/2007 & connected matters Page 34 of 62
from one name to another depending upon the convenience of
the assessee. it also talks of provision to be made to show the
source of funding as the assessee was claiming the helicopters
to have been bought on lease. Such language can be written
only by the buyer concerne4: with the source of funds etc. and
not the consultant. Further, in case, the helicopters: had been
bought on behalf of someone else, how the assessee could write
that the invoice had to be changed lathe name of some other
Indian company or that he was claiming that these helicopters
were being bought on lease. The assessee thus was exercising
complete control over the property."
44. This court is of the opinion that the ITAT's finding besides being
factual and concurrent, are sound given the materials on record. The assessee
had relied upon replies given to the Revenue on five points by Capitex, in its
letter of 26th October 1995. The Revenue's letter addressed by the assessing
officer (20.10.1995) sought details on firstly whether Centaur helicopters had
purchased two helicopters on behalf of M/s. Capitex for which US$ 401595/-
was paid and if so who paid it. Documents such as auditors' certified copy,
certified copy of bank statements giving details of the payments; and details
of total payments made along with the relevant dates of payment were
sought. The letter further sought information with regard to leasing of Sokol
helicopters and the contract which had confirmed that Capitex had
transferred US$166,002 to Wisik regarding the lease of one Sokol helicopter.
Certified copies from the auditors of Capitex of the balance sheet and the
bank statements were also sought. The last information sought was with
respect to the account concerning the Discount Bank and the request for
bank guarantee issued to the tune of $100,000. The remittances to Mr. Anuj
Chawla and Centaur helicopters as well as Centaur Impex (P) Ltd were also
sought. The reply given by Capitex on 26th of October 1995, no doubt
ITA 478/2007 & connected matters Page 35 of 62
discloses some information. For instance it states that the payment for the
two 300C helicopters were made by it and that negotiations were carried out
by Centaur on its behalf. Significantly, however, in reply to the pointed
query whether Capitex paid the amount, the letter stated that should
Schweizer Company USA" was instructed to provide a certificate of
payment received from Capitex limited and they have confirmed issuing such
certificate".
45. This guarded clarification in fact begs the question. The pointed query
was whether Capitex made the payment and if so the details of such
payments. Capitex in its reply was forthright that the two Schweizer
helicopters were purchased on its behalf. Yet inexplicably it refused to
provide details of bank account statements and audited statements. These
gaps in the opinion of the Court justified the Revenue to conclude- on the
basis of the other letters which painted a contrary picture - that Capitex was
controlled by Ashok Chawla. The other letters were written by Rocky.G.
Peters of Schweizer and the treasurer of Schweizer USA stated that the
helicopters were ordered or purchased by the assessee, Ashok Chawla. As far
as the Sokol helicopter details are concerned, the letter dated 26th October
1995 states that negotiations were carried out with Ashok Chawla acting for
United Airlines or on their behalf and payment was made by Capitex. The
letter also went on to state that Mr. Chawla was authorized only once to
remit US$ 1.5 million "for Mr. Rakesh Gupta of UIA from Ca. Am Bank of
Canada for negotiations and advance payment of 3 Fokkere 50" which was
to be carried out by Capitex. The letter stated that the money was never
received. An identical letter was given on 24.11.1995. In addition to the
details previously provided, Capitex clarified that the consultancy fee paid
ITA 478/2007 & connected matters Page 36 of 62
was GBP £2500 and no amount over and above that was ever paid on a
quarterly basis. The other material was a letter addressed to the
Commissioner of Income tax by Mr. Allen Saltman, on 16th December 1996.
It stated that Capitex was the subsidiary of one Inter Agra BV Holland a
Dutch company and held 66.5% shares in Capitex. Allen Saltman held the
balance shares. The letter stated that Ashok Chawla did not have any
shareholding and clarified that no transfer to the tune of US $ 40,000 from
Capitex from a Swiss account or any other account was made to National
Westminster Bank PLC and that no transfer of US $10,000 was made to
Ankur Chawla.
46. During the hearings, the counsel for Ashok Chawla had relied on an
order dated 31.12.2013 of the Joint Director, Enforcement, (pursuant to
notice issued to him and Centaur, dated 24.4.2002). The notice issued was
under Sections 49 (3) (4) and (5) (a) of the Foreign Exchange Management
Act, 1999. The order discharged the notice. The relevant parts of the order
are extracted below:
"3.1 The case was heard by the undersigned on 06.12.2013
when Sh. Pramod Shankar Tiwari, Advocate appeared on
behalf of the notices. During the personal hearing, the
Advocate submitted that written submissions which were filed
on 06.06.2006 in response to the Memorandum, were again
filed along with their letter dated 09.09.2013. He requested to
drop the proceedings on the ground that no transfer of money
to USA ever took place, neither any helicopter ever imported
into India on behalf of the noticees.
3.2 On perusal of their reply dated 6.6.2006, submitted
during personal hearing before me, it is found that the same
appears to have been filed in response to Memorandum no.T-
4/30-D/96/SCN-II dated 24.4.2002 & T-4/30-D/96/SCN dated
ITA 478/2007 & connected matters Page 37 of 62
11.12.96 and not in the matter of present Memorandum,
though, in the facts and circumstances of the case and after
going through the copies of documents furnished along with the
said reply, I find that these are also relevant to the proceedings
in the present Memorandum.
3.3 It is inter-alia submitted that the noticees have been
framed by conspiracy by the Income Tax Deptt. through one
Mr. Rakesh Gupta, a front man; that the statements of the
notice recorded by the Enforcement Directorate were forcibly
taken by the Department under duress, threat and intimidation
which were withdrawn through an application, moved within 3
days . With regard to allegations in the Memorandum, that two
Schweizaer Helicopters were allegedly bought by Sh. Ashok
Chawla, the noticee for USD 401596, it is contended that the
said payment was made by M/s Capitex Ltd. for leasing to
United India Airways Ltd.; that the helicopters never came to
India and at no time payment was made by the notice, who had
negotiated on behalf of M/s Capitex Ltd., for the two
helicopters; that the notice had been acting as a consultant to
M/s Capitex Ltd., UK and was authorized to carry out all the
negotiations on behalf of M/s Capitex Ltd. for purchase of the
said two Helicopters which were to be leased to United India
Airways Ltd.
3.4 The copies of the following documents have been
furnished along with the reply:
i) Letter dated 18.01.1994 from Capitex, UK to M/s
Schweizer Air Craft Corporation , USA authorizing Sh. Ashok
Chawla to negotiate on behalf of Capitex for purchase of
Helicopter,
ii) Letter dated 14.08.1995 from Capitex, UK to M/s
Centaur Helicopter Services Pvt. Ltd. confirming purchase of
Helicopters and regarding its shipment on lease to M/s Centaur
Helicopter Services Pvt. Ltd.
ITA 478/2007 & connected matters Page 38 of 62
(iii) A confirmation dated 15.09.1995 from M/s Schweizer Air
Craft Corporation, USA as Capitex, UK having purchased the
two Helicopters from them for which Sh. Ashok Chawla of M/s
Centaur Helicopter Services Pvt. Ltd., carried out all
negotiations on behalf of M/s Capitex, UK and
(iv) Letter dated 02.11.95 from Capitex, UK to M/s Schweizer
Air Craft Corporation, USA requesting them to sell of the
helicopters to some buyer as the same were not likely to be
leased to an Indian company.
4. Findings and order
4.1 I have carefully gone through the case material available
on record and also the defence reply filed along with
documents mentioned above. I find that the said documents
furnished by the noticees, prima facie show that Sh. Ashok
Chawla of M/s Centaur Helicopter Services Pvt. Ltd., acted as
representative for and on behalf of M/s Capitex, UK, who
carried out negotiations relating to purchase of two Schweizer
helicopters from M/s Schweizer Air Craft Corporation, USA by
M/s Capitex Ltd., UK, who made the payment for the purchase
of the choppers. These documents further show that after
purchase, the said helicopters were to be leased out to M/s
Centaur Helicopter Services Pvt. Ltd. for their operations in
India, which eventually didnt materialize and the import of the
said choppers into India did not take place.
4.2 On the other hand, the documents relied upon in the
Memorandum do not say that the helicopters in question were
purchased by the noticees. The letter dated 10.10.95 from M/s
Schweizer Air Craft Corporation, USA which is also relied in
the Memorandum states that they had received the payment
against two helicopters from M/s Capitex, UK. It does not
mention anything about the noticees or that the above payment
made to M/s Schweizer Air Craft Corporation, USA, was made
on behalf of the Sh. Ashok Chawla or his company, the noticees
in the present Memorandum.
ITA 478/2007 & connected matters Page 39 of 62
4.3 In the light of the above facts, the allegations in the
Memorandum that payment for purchase of the said choppers
was made by M/s Capitex, UK on behalf of the noticees and
that the noticees otherwise transferred foreign exchange to wit
US$ 4,01,985.90 to M/s Schweizer Air Craft Corporation, USA
against the said purchases in contravention of section 8 (1) & 9
(1) (c) of FERA, 1973 (46) of 1973 is not established.
4.4 Accordingly, I drop the charges against both the
noticees."
Learned counsel argued that the above order had the effect of exonerating
Centaur and Ashok Chawla of any wrongdoing in respect of the helicopter
deal. The order, said counsel is premised on the finding that Centaur had not
indulged in unauthorized foreign exchange transactions.
47. A careful reading of the Enforcement Directorate's order would show
that the notice was premised on violation of Section 49. That provision
preserved the authority of the competent officers to initiate action under the
provisions of the old and repealed law, i.e the Foreign Exchange Regulation
Act, 1974. Facially, the order of the Jt. Director does not disclose which
provision of the previous law had been infringed. Besides, more importantly,
the focus of inquiry in search assessment which the assessee was subjected
to under block assessment, was based upon materials recovered during the
search and seizure proceedings. Those materials, especially the letters
addressed by Schweitzer Corporation USA and the tone and tenor of the
letters issued by or written by Ashok Chawla had not been considered in the
Enforcement proceedings before the Joint Director. Consequently, the order
of the Enforcement Directorate is of little relevance in proceedings
ITA 478/2007 & connected matters Page 40 of 62
terminating or arising out of search and seizure assessment under the Income
Tax Act.
48. As discussed earlier the reasonableness of the findings by the ITAT is
the main issue here. Both the AO and the tribunal had rejected the assessee's
explanation that he was not the de facto owner or principal shareholder
having control over Capitex. To dispel the suspicion that the assessee had
entered into a contract for the purchase of two Schweizer helicopters and the
Sokol helicopter and was also responsible for the account in the Discount
Bank as well as the two remittances therefrom, and furthermore that he had
sufficient amounts to secure for the issuance of a bank guarantee to the tune
of US $ 100,000, relied upon certain other letters.
49. Now the jurisdiction of this court is to examine whether in the given
facts of the case, substantial questions of law arise and if so endeavor to
answer them. Unless the tribunal's inferences drawn on the basis of the given
facts, are so unreasonable or that the Tribunal overlooks material
circumstances and facts and renders a finding contrary to the documents, the
jurisdiction under Section 260A, does not arise. This court would have to
keep these broad constraints that control its jurisdiction in mind while
endeavoring to deal with the intensely factual nature of the issues urged.
50. Now as far as the explanation given through the letters said to have
been initiated by Capitex are concerned, the Court notices that only one of
them was directly received by the Revenue. The others were all furnished in
the course of the assessment order and some even later during the appellate
proceedings. Therefore, the origin of these letters is rather suspect. Secondly,
and more importantly, these letters only clarify about past transactions. If
indeed Capitex had entered into independent contracts for purchase or sale of
ITA 478/2007 & connected matters Page 41 of 62
Schweitzer helicopters or the Sokol helicopters, nothing prevented that
concern i.e. Capitex from furnishing copies of such contracts; nothing
prevented it also from furnishing some details as to the remittances or
payments made to the concerned banks, in order to purchase such equipment
or in the case where such contracts were not actually performed, show how
contracts were rescinded at and if any amounts were paid to the vendors etc.
Besides the fact that the letters shown are post-search, the lack of any
primary evidence, renders these clarifications suspect. They do not inspire
confidence-at least, not enough to dispel the inference drawn by the
Revenue, based primarily upon the material seized during the course of the
search and seizure proceedings.
51. What is significant is that Shri Ashok Chawla knew the Discount
Bank particulars; he even had several telephonic conversations with the Vice
President of that Swiss bank. If indeed the assessee Ashok Chawla were only
a consultant - not even an agent, the question as to his knowledge about his
principal's accounts and his familiarity with the Bank of the principal, would
never arise. Besides, how Ashok Chawla had the ability to operate the
accounts is also a mystery. If this are kept in mind while reading the letters
of Rocky. G. Peters and the later letter of 30th of August 1994 written by
him to the treasurer of Schweitzer Corporation, (which had previously
notified that the helicopters had been paid for and that the title had vested in
him), the suspicion which the Revenue harbored initially, based upon
probabilities, can be the basis for a finding that these transactions were at his
behest and he was the controlling force or voice in Capitex. As a
consequence, this court holds that there is no infirmity in the Tribunal's
findings on these aspects.
ITA 478/2007 & connected matters Page 42 of 62
52. Ashok Chawla was examined under Section 131 of the Income tax
Act, 1961 by the investigation wing on 11.10.1995, and asked to give details
of all the immovable properties owned by him in India and abroad either
himself or in the name of wife, son or otherwise financed or in other
capacity, money invested by him for the purchase of land and/or construction
or renovation etc. In response he denied having made any investment in any
construction or property abroad. He, however, gave details of properties
owned by him in India as follows:
i) B9, Saket, New DeIhi.
ii) 198, Sector 21 A, Faridabad
iii) Agricultural land measuring about one acre in NOIDA UP
iv) One SFS flat in Vasant Kunj, New Delhi
v) D1/24, Vasant Vihar New Delhi
vi) 40/98, Chitranjan Park, New Delhi.
vii) 2 acres of land in Gopal Hari, near Gurgaon.
A last Will dated 15.05.1995 was found from Ashok Chawla's premises in
which he had willed his fixed/movable assets to different persons. The will is
extracted below:
"This is to state that I ASHOK KUMAR CHAWLA, S/O SHRI
PRITHJVI RAJ CHAWLA sound in mind and body, solemnly
declare that this is my final and last will which may be followed
up to the last word, in case something happens to me. .
The executor of my Will shall be Mr. ARUN ARORA of E-44;
Panchseel Enclave, New Delhi.
All my movable and immovable properties is to be handed over
my son ANUJ CHAWLA, sound in mind and body, solemnly
along with my locker keys. However, out of my cash holdings
and assets the distribution is to be made as mentioned below:
ITA 478/2007 & connected matters Page 43 of 62
The properties already in the name of my wife Mrs. ANU
CHAWLA to continue, which have been totally paid up by me.
These properties are namely :
a) House -198 Sector 2-A, Faridabad
b) Flat No.4316, Pocket B4, Vasant Kunj, New Delhi
c) Farmland in NOIDA
She may at her own discretion pass anything she likes to our
daughter ANISHA CHAWLA
From the cash assets the following distribution to be made:
A .Miss VIJAYA RAJ GOPAL - Rs10,00,000/- (Rupees Ten
Lakhs)
2 MRS. BHAGYATI SIBBAL- Rs. 700,000/- (Rupees Seven
Lakhs) . .
3. MISS PRAJANA KAPOOR Rs.5,00,000/ (Rupees Five Lakhs)
All the Male Staff to be given Rs.25000 (Rupees Twenty Five
Thousand) each, which are as under:
2 Drivers
5 Servants in the Office E-6, Anand Niketan, New Delhi..
1 Servant at Faridabad house
2 Servants at B-9, Saket New Delhi.
Any Fixed/Movable assets abroad should automatically be
passed on to my son ANU CHAWLA, the list of which is known
only to my son.
Any enquiry/objection from any member of my family shall be
sorted out by the Executor of my will, MR. ARUN ARORA and
his decision would be final.
sd/ ASHOK CHAWLA
Witness: ....
1. Vasant Kunj property to be given to Madhu Talwar, my
sister,
2. Both children of Vijay to be given Rs. 5 lacs cash by ANUJ
my son."
53. The Tribunal noted that Anuj Chawla owned the Saket, Faridabad and
Vasant Vihar properties; that the property at E-34, Greater Kailash I was
owned by Vijaya Rajagopal; that of E-6 Anand Niketan was owned by Mr.
ITA 478/2007 & connected matters Page 44 of 62
Zal Akhtar; the farmland at Gwalpahari and 199/21A Faridabad was owned
by Ms. Asha Jain and that Ashok Chawla owned 40/98 CR Park. Besides, it
took into account the London property and said that it was in Ashok
Chawla's possession. The tribunal thereafter found as follows:
"We have separately considered additions (i) to (v) above. But
we are convinced that above additions alone will not be
reasonable or sufficient to take stock of unaccounted
commission etc. earned by the assessee and, therefore, further
addition of Rs.4,58,11,000/- is required o be made to make the
assessment realistic having regard to the scale on which the
activities were carried on by the assessee in the block period.
The objection of the Id AR in regard to the additions: were that
it was made purely on estimate. The id AR has also pointed out
that the A.O. had not considered the valuation made by the
registered valuer which supported the investment declared in
the various block returns. These arguments are not found
convincing. The investments in these properties were detected
only during the course of search and these properties were not
accounted for. in the block assessment, addition can be made
on the basis of material found during search. In this case,
material found during search, clearly showed unaccounted i
investments in properties.
Therefore, addition in relation to these properties in the
block assessment is quite justified and for quantifying the
addition, the value of actual investment has to be found out for
which valuation of the unaccounted properties is necessary.
Therefore the addition on the basis of valuation report in the
Facts of the case will be within the provisions of law.
Registered valuer has only supported whatever the assessee
disclosed in the block return. During the course of hearing, he
id counsel for the assessee was unable to show that reports of
registered valuer are based on relevant data; nor any specific
defects were brought to our notice in the valuations made by
the V.0. The valuation of the registered valuer therefore, cannot
be taken as reliable considering the common practice of large
ITA 478/2007 & connected matters Page 45 of 62
scale underinvestment in immovable properties. As for the
name in which the excess investment found on valuation of
immovable properties should be assessed, we have already held
earlier that on the facts of the case such excess investment has
been rightly considered in the name of the assessee. Further,
we are not sustaining the above addition merely on the basis of
valuation of V.. There are other circumstances discussed herein
to justify the assessment of amount of commission earned by the
assessee and invested in various properties."
54. Counsel for the appellant argued that the additions made and sustained
by the tribunal cannot be upheld utterly without legal foundation. It was
argued that the owners of the properties were different. In at least 3 cases the
owners were not family members. Two of them, i.e. Zal Akhtar and Asha
Jain had sent written confirmations about ownership; they were also non-
residents living in the USA. Additions made on account of these three
properties were therefore conjectural and entirely based upon the report of
the DVO. Learned Senior counsel argued next that as far as the property
owned by the appellant and his company, Centaur, are concerned, the
tribunal ignored and overlooked the circumstance that the original
acquisition cost had been declared in the previous returns. In the case of the
C.R Park property, even the detailed record of expenditure incurred in
constructing the building was available. All these were ignored and the
valuer's report was preferred. Urging this court to overturn and set aside
these findings, counsel stressed that the rationale for referring this issue to
the valuer was the assumption that substantial amounts were earned but not
declared during the block which had been invested in these properties.
55. Counsel for the Revenue argued that the findings with respect to
valuation of properties and the additions made, should not be interfered with.
ITA 478/2007 & connected matters Page 46 of 62
He relied upon the observations of the tribunal that Sh. Ashok Chawla was
actively involved in major defense deals and was party to detailed
procurement plans, under the heading "modernizing army" a document
found from his premises. This document contained an assurance by the
appellant guaranteeing payment of US $120,000 in the event a particular
contract did not materialize though the guarantee was given on the letterhead
of a group company, such an assurance was clearly given in his personal
capacity. This disclosed the scale at which he operated. Expenses relating to
office maintenance at Moscow too were found. Moreover his ability to
maintain a Swiss bank account and operate it also stood established.
Although full details of such accounts could not be obtained on account of
stringent secrecy laws in Switzerland, the assessee did not clarify this
position nor clear the air. His statement made in the course of the
proceedings admitted that he had invested substantial amounts to its
acquisition of properties. This investment of unaccounted wealth was to the
tune of `1.43 crores. The total value of these properties was assessed by the
DVO at `6 crores.
56. This court has examined the orders of the AO and the ITAT. It is
apparent that both these authorities disregarded the returns and the values
disclosed in those returns by the owners, and rather presumptively added
amounts towards what according to them were the true value of the
properties, in line with the report of the DVO. This court is of opinion that
such an approach defies logic and is manifestly erroneous. Notices were
separately issued to Ms. Anu Chawla, Mr. Anuj Chawla and the other
owners of the properties which were subjected to fresh valuation. Returns
were filed by those parties. These returns disclosed the value (which in some
ITA 478/2007 & connected matters Page 47 of 62
cases, like in the case of Anuj Chawla and Anu Chawla) were over and
above the cost disclosed in the returns. The AO partly accepted the
additional value declared by these third parties/ relatives, but also at the same
time - entirely based on the DVO's valuation, added some more. This
approach is erroneous, because on the one hand, the higher value of the
owner is accepted, only to be loaded with a further amount. The entire
additional value (i.e the extra value disclosed in the block returns by the
owner plus the further additional value, determined by the DVO) was
brought to tax in Ashok Chawla's hands. This approach can be demonstrated
by illustration. D1/24, Vasant Vihar, New Delhi was valued by the DVO as
`42,90,590/-. The property stood in the name of Anuj Chawla, the son of the
assessee who had declared `18.83 lakhs as the total investment in his return
of undisclosed income. The excess of the declared value i.e. `24,07,000/-
along with brokerage of 2% i.e. `85,810/- totaling `24,92,810/- was added
by the assessee as undisclosed income of the assessee on substantive basis
and addition of `24,97,000/- was also added on protective basis in case of
Anuj Chawla. Likewise, over `23 lakh was added to the assessee/Ashok
Chawla, solely on the basis of the DVO's report.
57. This court is of the opinion that the findings of the ITAT in this regard
are unsupportable in law. During the course of assessment proceedings, the
assessee, Ashok Chawla, in answer to queries, had on 27 th August, 1996 and
6th September, 1996 pointedly and clearly stated that the properties that were
not in his name were not acquired by him. Yet, on the basis that the assessee
must have earned substantial income which was not declared, both the AO
and the ITAT embarked upon the venture of revaluation of the properties
that did not belong to him and concluded that the difference between the
ITA 478/2007 & connected matters Page 48 of 62
transaction value reflected in the documents and the higher value determined
was the sum total of his undisclosed income. This clearly betrays a
contradictory approach; worse, in some cases, additions were made and
confirmed in the hands of the owner and the assessee, Ashok Chawla, was
subjected to protective assessment; in cases of others, such as Asha Jain and
Zal Akhtar, the additions were made to his returns. Furthermore, in respect
of one property, i.e., the Anand Niketan premises, the documents showed
that the assessee Ashok Chawla was only a power of attorney holder and had
not paid the entire consideration. Yet, the AO concluded that he must have
paid the entire consideration.
58. However, as far as the addition of `1.50 crores made in respect of the
London property is concerned, stands on a different footing. The search and
seizure had yielded documents pertaining to the London flat. The
explanation given by the assessee Ashok Chawla cannot be accepted. The
position taken by him was that the property was rented. If so, the question of
paying maintenance, and the bills found in his possession, remained
unexplained. Furthermore, the documents seized also showed that insurance
amounts were being paid.
59. As the assessee did not disclose the true value of this property, the ad-
hoc valuation at ` 1.5 crores cannot be faulted.
60. The court notices that the ITAT had also given relief to the extent of
restoring the addition to the extent of `25 lakhs to the AO for further inquiry
and findings. Also, it deleted an addition made by the AO to the tune of `4
lakhs. No fault can be found with these.
61. After the ITAT made the impugned order, the assessee, Ashok
Chawla, moved an application for rectification. This was partly allowed and
ITA 478/2007 & connected matters Page 49 of 62
limited relief was given by the order dated 17th September 1996 to the extent
of `13 lakhs which was directed to be deleted. Though this order has been
challenged in W.P.(C) 3517/2011 no separate arguments were addressed
why it is erroneous. In any case, the court has dealt with the merits of the
main appeal. So no relief can be granted in this writ petition.
62. As a result of the above findings, the addition sustained by the ITAT
(`7,37,30,266/-) has to undergo substantial change. The additions made on
account of re-valuation of various properties (aggregating to `4,58,70,124/-)
except `1,50,00,00/- have to be deleted. Therefore, the ITATs order is
modified; the assessee is entitled to further relief to the extent
of `3,08,70,124/- which has to be deleted from the sum of `7,37,30,266/-.
The appeal (ITA 495/2007) partly succeeds to that extent. The ITAT had
given relief in rectification proceedings to the extent of `13 lakhs. All these
are to be taken into consideration by the AO, while giving appeal effect.
W.P.(C) 4299/2007 is, however, for reasons mentioned in the earlier part of
the judgment relating to the validity of the search, without merit. It is
therefore dismissed.
63. The assessee/appellants grievance in W.P.(C) 7962/2009 is with
respect to an order of the Commissioner of Income Tax under Section 220 of
the Income Tax Act. Ashok Chawla had expressed, during the pendency of
his appeals before the ITAT, inability and hardship to pay interest and sought
its waiver. The CIT considered all the records and the facts pertaining to the
stages of the proceedings, as well as the offer to liquidate some of the tax
liability and held that exercise of discretion under Section 220 (2A) was not
made out. The assessee argues that during the pendency of the present
appeals and writ petitions, one of its properties has been sold and repeated
ITA 478/2007 & connected matters Page 50 of 62
offers to settle tax liabilities were made and that this court should take all
these into consideration.
64. This court has considered the submissions and materials on record.
The materials and circumstances suggest that the assessee is in possession of
adequate and substantial resources and could well have discharged his
liabilities toward the Revenue. He chose not to do so; it is not as if in the
event of his paying the tax liabilities and later succeeding, he would not have
been restituted. Such restitution with interest is permissible; the law
mandates it. In these circumstances, the discretion, exercised after
considering all material facts, cannot be faulted as injudicious or arbitrary.
For these reasons, the writ petition (W.P.(C) 7962/2009) fails and is
dismissed.
ITA No. 817/2007: Revenues appeal against the ITATs order
65. The ITAT had sustained the addition made by the AO, to the extent
of ` 7,37,30,266/- and deleted an equivalent amount. The Revenue is in
appeal against this part of the impugned order, contending that the said
deletion is unreasoned. In this regard, the deletion to the extent of `4.42
crores (on account of the 15% commission assessed in the hands of Capitex)
and further sums of `27.31 lakhs and `57.60 lakhs made by the AO on
account of "upfront" money for pursuing the defense deal to the extent of
UK £ 120,000. Counsel for the Revenue argued that these amounts should be
sustained, and that the reasons given by the ITAT are without basis.
66. This court is of opinion that the main reason that impelled the ITAT to
direct deletion of the substantial amount of `4.42 crores is found in Para
ITA 478/2007 & connected matters Page 51 of 62
20.7.7. It cannot be said that these reasons are untenable. The amount was in
fact on account of 15% commission, which the according to the AO was
received by him. Likewise, the deletion of the two other amounts cannot be
said to be unreasonable. For these reasons the court holds that the Revenues
appeal, ITA 817/2007 is without merit. It is accordingly dismissed.
67. In IA 356/2017, the applicants, Lakhan Singh and Bhagat Singh, seek
impleadment in W.P.(C) 4299/2007, filed by Ashok Chawla, contending that
the attachment of properties, i.e farmlands should be vacated. They claim to
be decree holders entitled to the said property and seek directions for release
of the property in issue i.e. property No.7 being Farm Land at Village Gawal
Pahari, Tehsil Sohna, Khewat No.109, Khata No.111, Rect. No. 39, Killa
No.16/1(5-16) and V2 share in khewat No. 294, Khata No.308, Rect. No.39,
Killa No. 16/2(2-4) share bearing 1 kanal 2 marla and khewat No. 295, Khata
No. 309, Rect. No.39, Killa No. 25(8-0) measuring 14 kanals 18 marlas, total
admeasuring 16 Kanal (2 acres) from attachment made by Income Tax
Department. For this purpose, reliance is placed on the decree in suit filed by
them for possession, passed by the Civil Judge, Gurgaon on 26.09.2016. The
parties, i.e., Ashok Chawla and Revenues counsel as well as counsel for the
applicant were heard.
68. This court is of opinion that the issue as to entitlement of one or the
other party to possession, per se does not conclusively decide the question of
title. Furthermore, and more importantly, the concerned officials of the
Revenue made the attachment of the properties. Further, by virtue of Section
293 of the Income Tax Act, the subject matter of income tax proceedings
cannot be also the subject matter of civil proceedings. This issue was
considered by the Supreme Court in Commissioner of Income Tax,
ITA 478/2007 & connected matters Page 52 of 62
Bhubaneswar and Anr. v. Parmeshwari Devi Sultania, (1998) 3 SCC 481.
The Court was concerned with was partition of certain gold ornaments that
had been the subject of search and seizure under Section 132. In deciding
that the suit in so far as it concerned the ownership of the gold ornaments
was barred, the Court noted at paragraph 9 as follows:
"9. It (the High Court) failed to consider the effect of the decree
if passed in the suit on the order under Section 132(5) of the Act
or other proceedings under Section 132B of the Act. When
Section 293 originally stood, it (sic) provided that "no suit shall
be brought in any Civil Court to set aside or modify any
assessment or order made under this Act". The word
"assessment" was omitted and the words "proceeding taken"
were inserted in its place. This made the section more
comprehensive in nature. Direct effect of the decree in the suit
would be that the gold ornaments, subject matter of this suit,
would be taken out of the order of the Income Tax Officer under
Section 132(5) of the Act and would not be available to be
applied in proceedings under Section 132B of the Act..."
It is therefore, held that this court cannot decide this issue in the assessees
appeal and writ petitions. If the applicants claim to have any interest, they
have to approach the concerned income tax authorities. IA 356/2017 and
connected applications (IA 449/2017) are consequently dismissed.
69. In the light of the conclusions recorded above, ITA 495/2007 succeeds
in part; ITA 817/2007, along with W.P.(C) 4299/2007, W.P.(C) 7962/2009
and W.P.(C) 3517/2011 have to fail. IA 356 & 449 of 2017 are also
dismissed.
Appeals in relation to Centaur Impex: ITA 479/2007 (assessee) & ITA
1246/2007 (revenue)
ITA 478/2007 & connected matters Page 53 of 62
70. In relation to Centaur Impex, the assessee, pursuant to notice under
Section 158BC, the AO made additions to the extent of `92,50,878/- as
undisclosed income. This was based on the AOs determi nation of
undisclosed income assessed on substantive basis due to unexplained credit
in bank account for AY 1995-96 (`40,65,086/-) and unexplained credit entry
in the Discount Bank & Trust Co, Zurich, assessed on substantive basis for
AY 1995-95 @ `51,12,392/-. Upon the assessees appeal, the ITAT gave
substantial relief, by deleting `40,65,086/-. The assessee is in appeal,
complaining that the balance amount should have been deleted; the
Revenues appeal is that the amount of `40,65,086/- should not have been
deleted.
71. This court notices that the ITAT granted relief and deleted the sum of
`40,65,086/- after analyzing the factual material to hold that there was
documentary evidence in support of its contention that the amount was
toward exports made (in relation to contract No.7613). The ITAT took into
consideration fax messages and other communications to infer these
circumstances. The Revenue argues that such material was insufficient to
warrant the relief given. This court is of opinion that the ITAT applied its
mind and considered the objective facts. There is no unreasonableness in its
approach warranting an appellate review. Consequently, the Revenues
appeal has to fail.
72. The assessee argues, in its appeal ITA 479/2007 that the amount of
`51,12,392/-, a foreign remittance from the Discount Bank account, was
mistakenly to its account and that it should have been paid into the
account of Centaur Helicopter. Since the assessee did not have an RBI and
IE code, it transferred the order to M/s. Kerr Enterprises, a concern of Mr.
ITA 478/2007 & connected matters Page 54 of 62
Patrick Kerr, who was also its director. The exports were actually made
during the next year. The Revenue, however, points out that the amount
came from the account of Capitex and the explanation given by the assessee
is unconvincing, as the said company had no concern with the transaction.
73. This court has considered the rival submissions. The ITATs findings
are as follows:
" The export had been made to ATTL Uk and therefore, the
payments were required to be made by ATTL. Merely because
Mr. Allen Saltmer was Director of both ATTL and Capitex and
was interested in becoming director of Centaur Impex, is no
ground for Capitex to make payment on behalf of ATTL.
Moreover, no further evidence in the form of a certificate from
auditors in case of ATTL or any other reliable evidence has
been produced to show that in the books of ATTL, the said
amount had been shown as a loan from Capitex. The plea that
some export against the advance had been made in the
subsequent year, is also not acceptable."
It is evident that the tribunal considered the facts and circumstances relied
upon by the assessee. The inferences drawn by it, whilst independently
evaluating the submissions, cannot be termed unreasonable as to warrant
interference under Section 260A of the Act. The assessees appeal, therefore,
has to fail.
74. As a result of the above discussion, both appeals, ITA 479/2007 and
ITA 1246/2007 have to fail.
ITA 988/2007: Block assessment appeal by Centaur Helicopter Ltd
75. Centaur Helicopter is aggrieved by the order of ITAT dated
31.05.2007, which substantially upheld the AOs order in the block
ITA 478/2007 & connected matters Page 55 of 62
assessment pursuant to Section 158BC of the Act. The AO had made
additions under Section 158BC to the extent of `27,35,831/- for the block
period added further sums of `12,00,000 (as undisclosed payments to BK
Menon); additions towards commission and consultancy income not
disclosed during the period to the extent of `1,71,05,675 and added
unexplained expenditure under Section 69C to the tune of `23,73,590/-. The
total amount thus brought to tax was `2,34,15,096/-. The assessees appeal to
ITAT was partly allowed; the last amount of `23,73,590/- towards
unexplained expenditure was deleted.
76. The assessee argues in its appeal, under Section 260A that the tribunal
failed to consider important evidence, which pointed to the fact that it had
not received any amounts apart from what, was given as a quarterly fee or
retainer, i.e., GBP £ 2500 per quarter. The AO added amounts based purely
on surmises drawn by him from the seizure of some loose papers which
contained figures; amounts were also added, based on the UK Revenue
intelligence report to which the assessee was not privy. It was argued that
consequently, the inclusion of the sum of `1,71,05,675/- was not on any
sound logic or reasoning, but an arbitrary exercise. The Revenue, on the
other hand, argues that the ITATs decision is sound and sho uld not be
interfered with as they are pure findings of fact.
77. The AO - and later, the ITAT, had carried out an elaborate, year by
year analysis of the amounts that the assessee received - reflected in the
books and documents seized, but not declared by it, in the returns or even
block returns. These documents, which formed the basis of the block
assessment, were A-9, A-10, A-11 and A-12. Details for every year were
ITA 478/2007 & connected matters Page 56 of 62
discussed and a comparison made with respect to what was actually declared
and what amounts had been received; the differential amount was brought to
tax. This court is unpersuaded with the assessees arguments on this aspect.
The ITAT has considered all the materials and the UK Revenue services
communications, corroborating that the receipts were in facts GBP
£233,991/- more than the sum declared for the given year (1993-94), i.e.,
GBP £6000/-. This was, according to the currency conversion at that time,
`1,16,05,797/-. There is no infirmity amounting to a substantial error calling
for interference by this court. ITA 988/2007 therefore, has to fail.
ITA 478/2007: Anuj Chawlas appeal
78. Search under Section 132 of Income Tax Act 1961 was conducted on
31.08.1995 in case of the assessee the son of Shri Ashok Chawla as well as
in cases of connected group companies and their employees. The Revenue
discovered that the assessee was owner of certain immovable properties,
lockers and bank accounts. A sum of `4 lacs was seized from the locker.
The assessee, in his block return of income declared an undisclosed income
of `37,58,388/-. In the assessment, the AO determined the undisclosed
income from the block period at `1,84,35,244/- after making additions on
several counts. Aggrieved with the said decision of the AO the assessee is in
appeal before the Tribunal.
79. The addition of `53,84,258/- on account of deposit of money in the
bank account of the assessee in India in AY 1993-94 and 1994-95 were
upheld. These amounts were alleged to have been transferred from Discount
Bank & Trust Co. Switzerland. The assessee explained that the money
transferred was out of the income earned by him in USA as flight and ground
ITA 478/2007 & connected matters Page 57 of 62
instructor. He also said that the money had been transferred through Shri
Allen Saltmer, a family friend to whom the payment had been made in the
form of travelers cheque/cash from time to time. Mr. Saltmers confirmation
was obtained and placed on the record. The assessee also relied on
certificates from his clients in USA regarding receipt of money for training
obtained from him as instructor. The A.O. did not accept the genuineness of
the assessees income earned in USA as there were no corresponding
deposits in bank accounts did not support the receipts nor any evidence was
produced for payment of any tax in USA. The ITAT also noticed that the
assessee was only about 18 when he left India for USA in early 1990.
Certificates dated 01.05.1990 and 01.10.1990 regarding successful
completion of commercial ground school course and Instrument Ground
School course by the assessee were produced. He was issued Commercial
Pilot License dated 25.03.1991 and Ground Instructor License dated
04.04.1991 from the Department of Transportation, USA. The assessee had
also been issued a J-1 visa which entitled him to work in USA. It was held
that mere possession of qualification and permission to work does not prove
that the assessee had really worked as an instructor had earned substantial
money in USA. It was also held that no evidence was produced to
substantiate that the assessee had sufficient experience in flying so as to take
up a successful career as an instructor, nor that he had really worked as a
Flight and Ground Instructor. The certificate procured from the foreign
clients is on a plain piece of paper and these certificates were not
authenticated and could not be treated as reliable.
80. This court is of opinion that the ITATs reasoning is sound. The
failure of the assessee to produce credible or sound evidence supporting his
ITA 478/2007 & connected matters Page 58 of 62
claim that the amount in question was his savings from earnings in the US
for about 3 years. The probability of someone barely out of his teens,
securing substantial earnings and to cap it, not possessing any bank account
in the USA, is remote, to put it mildly.
81. The second head on which the AO had added amounts and brought
them to tax, was the re-valuation of property. The assessee had declared the
value of his properties; these were sent for fresh valuation by the AO. The
relative particulars of the value declared in the block assessment and the
revaluation together with the differential value, are reproduced in the
following chart:
S.No. Description Cost of Value as Differential
of Property investment declared by value
determined by assesse in
AO return under
Section
158BC
1. D-1/24, `42,90,000 `18,83,000 `24,07,000
Vasant Vihar
2. B-9, Saket `80,52,400 `13,25,000 `67,27,400
82. The ITAT was of opinion that the protective assessment made in the
hands of the assessee, because of the substantive assessment in the hands of
Ashok Chawla, was justified. It held that:
"7.3 We have perused the records and considered the matter
carefully. The addition under dispute is on account of
undisclosed investments in the two properties under reference
which stand in the name of the assessee. The investment in
these properties came to light only from the documents found
during search and, therefore, addition on account of under
investment in these properties is justified in the block
ITA 478/2007 & connected matters Page 59 of 62
assessment because the addition was being made only on the
basis of material found during search. Though these properties
are registered in the name of the assessee, the investment in
these properties had been owned by Shri Ashok Chawla, the
father of the assessee. During his examination u/s 131 by the
Investigation Wing on 11.10.1995, Shri Ashok Chawla had been
asked to give details of all the immovable properties owned by
him in India or abroad either himself or in the name of wife,
son or otherwise financed or in other capacity, money invested
by him for purchase of land and/or construction/renovation etc.
In response to the said question, he gave details of the several
properties owned by him which also included B-9, Saket, and
D-1/24, Vasant Vihar which stand in the name of the assessee.
In view of this position, any addition on account of excess
investment found on account of valuation report has to be
added in case of Shri Ashok Chawla, the father of the assessee.
The issue regarding the legal validity of the addition made on
the basis of valuation report has been examined in detail in
case of Shri Ashok Chawla where the addition has been made
on substantive basis. As we have held that the addition has
rightly been made on substantive basis in case of Shri Ashok
Chawla, the protective addition in case of the assessee made by
the A.O. is, therefore, deleted."
83. As noticed in the relevant discussion while deciding ITA 495/2007,
there was nothing seized during the search under Section 132 which could
have led the Revenue authorities to re-value the properties. The entire basis
for the fresh exercise was that Ashok Chawla would have earned greater
income having regard to the nature of his business transactions, which he
must have kept away from the gaze of the taxman. No document, pointing to
extra payment of the amounts (that constituted the differential between the
transaction value and the finally determined value or some other value) was
recovered or seized. In these circumstances, it is held that the assessment
ITA 478/2007 & connected matters Page 60 of 62
order, including these amounts on protective basis cannot be upheld. ITA
478/2007 is therefore, partly allowed to the above extent.
ITA 822/2008: Appeal of Vijaya Rajagopal
84. This assessee is aggrieved by the ITATs order dated 26th December
2006, which had rejected her plea. The AO had added `13 lakhs to her
income during the block period, on the basis of a document found and seized
during the search. The assessee, upon notice had filed a block return,
declaring `21 lakhs as undisclosed income. The returns and documents field
revealed that the acquisition cost of the flat was `9 lakhs. The AO was of
opinion that the documents seized showed that Ashok Chawla acquired the
flat through funding. He relied on two documents, A-9 and A-32 and
rejected the assessees plea that the flat was a gift - which was later altered to
payment through an interest free loan from Ashok Chawla.
85. It is argued that the value finally attributed for the flat is fanciful and
arbitrary. Learned counsel submitted that the valuers report determined the
property value at `18 lakhs. The AO, however, adopted an entirely different
value of `22 lakhs. The Revenue, on the other hand, justifies the addition on
the ground that it is primarily based on the materials recovered.
86. This court has considered the submissions and the relevant materials.
The document seized and relevant for this purpose is a loose sheet of paper,
containing figures. Against "E-6", the figure "22" is shown. Next to it "N-8"
against which the figure "5" has been scribbled. Three other figures too have
been shown. Ipso facto these mean nothing. The AO deduced that these
reflected the true value of the property and went ahead to refer the matter to
the valuation officer. The latter, in his report, after considering the then
prevailing prices and looking at a transaction of 1996, felt that the value of
ITA 478/2007 & connected matters Page 61 of 62
the property was `18.36 lakhs. In the absence of any credible material
pointing at undervaluation, the exercise was unwarranted. Worse, after
having secured the valuation report, the AO proceeded in an unprincipled
manner, and decided that the true value of the property was `22 lakhs,
bringing the balance `13 lakhs to tax. This court is of the opinion that the
material found was sketchy and insufficient to warrant a fresh valuation. In
any case, the AOs order did not even go by the valuation report, but on an
entirely different footing- not based on any principle at all. Therefore, the
addition has to be set as and is accordingly set aside. The ITAT had remitted
the issue of ` 3 lakhs added by the AO for fresh consideration. In the light of
the above discussion, ITA 822/2008 has to succeed.
Conclusions
87. ITA 822/2008 is allowed. ITA 495/2007 and ITA 478/2007 succeed in
part and are allowed. ITA 817/2007, ITA 479/2007, ITA 988/2007 and ITA
1246/2007along with W.P.(C) 4299/2007 (including IA 356 & 449 of
2017),W.P.(C) 7962/2009 and W.P.(C) 3517/2011 are dismissed. There shall
be no order on costs.
S. RAVINDRA BHAT
(JUDGE)
R.K. GAUBA
(JUDGE)
APRIL 11, 2017
ITA 478/2007 & connected matters Page 62 of 62
|
