Commissiner of Income Tax v. Priyanka Ship Breaking Company Pvt Ltd

order as to costs.

(R.V. EASWAR) JUDGE

(S. RAVINDRA BHAT) JUDGE

SEPTEMBER 17, 2012 Bisht

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on : 21st August, 2012. % Date of Decision : 17th September, 2012. + ITA NO.526/2010 COMMISSIONER OF INCOME TAX .... Appellant Through : Ms.Rashmi Chopra, Sr. Standing Counsel VERSUS PRIYANKA SHIP BREAKING COMPANY PVT. LTD. .... Respondent Through: Mr.Ajay Vohra with Ms.Kavita Jha and Mr.Somnath Shukla, Advocates. CORAM: MR. JUSTICE S. RAVINDRA BHAT MR. JUSTICE R.V. EASWAR 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes R.V. EASWAR, J.: This is an appeal filed by the Commissioner of Income Tax under Section 260A of the Income Tax Act, 1961( Act for short). On 31st January, 2012 the appeal was admitted and the following substantial questions of law were framed:- "1.Whether the Income Tax Tribunal was right in deleting the addition of Rs.28,50,000/- made in the block assessment order dated 08.05.2009 on account of peak credits in the account of M/s Madhepuri Finance Ltd, M/s Madhopuri Metal Industries Pvt. Ltd., M/s Fenil Information System Pvt. Ltd. and M/s Merchant & Co. as income from undisclosed sources ? 2. Whether the order of Tribunal is perverse? " 2. The appeal arises out of block assessment made on the assessee, which is a private limited company, under Section 158 BD read with Section 158BC of the Act, pursuant to a search carried out under Section 132 of one Mahendra H. Shah and one Hemant C. Shah, both belonging to the Madhupuri Group of Jamnagar, Gujarat on 7th December, 1999. In the course of the search, certain documents were seized and statements were recorded. A statement from Mahendra Shah appears to have been recorded on the date of search in which he has stated that he was giving and taking loans on commission basis. It would appear that the books of the assessee company showed loans of Rs.74,29,460/- from the Madhupuri Group of companies, which was controlled by Mahendra Shah and Hemant Shah. On the basis of the statement of Mahendra Shah, a satisfaction note was recorded by the Assessing Officer who had jurisdiction over him (and Hemant Shah) and the same was communicated to the Assessing Officer having jurisdiction over the assessee. Based on the satisfaction note, proceedings were initiated against the assessee under Section 158BD and a notice was issued on 11th February, 2003. 3. In response to the notice the assessee filed bock return on 23rd April, 2003 declaring undisclosed income of Rs. Nil. In the course of the assessment proceedings the assessee contested the validity of the proceedings under Section 158 BD and also sought to contend that there was nothing in the statement of Mahendra Shah implicating the assessee company and there was no evidence to show that the loans taken by the assessee company from the Madhupuri Group of Companies were sham or merely accommodation entries. The contention was, however, rejected by the Assessing Officer who extracted the relevant details of the loans obtained by the Assessee from the Madhupuri Group of Companies and held them to represent the undisclosed income of the assesssee. However, he did not add the entire amount of the loans but calculated the peak credit by combining all the loans from the different companies belonging to the Madhupuri Group and arrived at the peak credit of Rs.28,50,000/- which was added as the undisclosed income. The assessment was completed accordingly. 4. The assessee appealed to the CIT(Appeals) and reiterated its contentions against the addition. The CIT(Appeals) obtained the comments of the Assessing Officer, vis-à-vis, the submissions of the assessee. In the letter dated 31st May, 2004 addressed to the CIT(Appeals), the Assessing Officer does not appear to have made any specific comments on the seized material or regarding the contention of the assessee that no opportunity to cross-examine Mahender Shah was given and, therefore, the addition was