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