By TIOL News Service

NEW DELHI, APR 18, 2017: THE issue before the Bench is - Whether fact of purchase of helicopter by individual through company a/c is sufficient to infer that such transactions were at behest of individual who had controlling voice in said company. YES is the verdict.

Facts of the case

The assessee i.e., Ashok Chawla had served in the Indian Army. He retired in 1984 and went on to set up M/s. Centaur Helicopter Services (P) Ltd with him and his wife as its directors. Centaur was an authorized dealer of M/s. Schweizer Aircraft Corporation USA, for purchase and sale of its helicopters in India. Ashok Chawla was also consultant to M/s. Capitex Impex (P) Ltd. for manufacture of leather goods. The Revenue suspected that Ashok Chawla used to earn income from defence deals and contracts, which he did not account for in his income tax returns and he instead claimed to be an army pensioner and salary income earner from Centaur.

On 31st August, 1995, a search and seizure operation was carried out by the Revenue in his premises as well as those of his companies, concerns and individuals associated with him. This resulted in seizure of several documents, cash and other materials. Ashok Chawla and others who received notices, pursuant to the search, filed block returns for the period AY 1985-1995. Ashok Chawla declared undisclosed income to the extent of Rs. 39,86,916/-. In the assessment order by the AO, the income assessed for the block period that was brought to tax was Rs. 17,77,29,193/-. When the matter reached the ITAT, it was concluded that M/s. Capitex was only a front put up by Ashok Chawla to explain various transactions and could not be given any importance. It upheld the rejection of assessee's explanation with respect to purchase of helicopters on behalf of M/s. Capitex. The ITAT therefore, upheld the findings that Ashok Chawla was bound to explain the source of payment, which he had not given satisfactorily. The discount allowed, i.e. $ 85,364 was held to be unsustainable and was therefore, deleted by following the reasoning that such amount merely reduced the value of the helicopter of which the assessee was the purchaser. Likewise, the claim of reimbursement of Rs 1,37,79,186/- from Rakesh Gupta for which the Ashok Chawla gave an explanation was held to be unsatisfactory. This amount included a sum of Rs. 54.78 lakhs on account of payment to the helicopters and Rs. 29,51,186 on other counts. The ITAT further upheld the commission at 15% not disclosed by the assessee from the documents seized, on account of supply of Kraz 260 trucks to Ukraine - Rs. 24,67,50,000/- and a contract for MI platforms for a consideration of US$ 50,40,000/-. On an overall analysis, the ITAT sustained the addition of Rs. 7,37,00,000/- as against addition of Rs. 14,98,66,417/- made by the AO. The other substantial amounts brought to tax was Rs. 4 lakhs seized from the locker of ND Vault, Defence Colony - Rs. 2,36,000/- and Rs. 25,00,000/-.

On appeal, the HC held that,

++ the jurisdiction of this court is to examine whether in the given facts of the case, substantial questions of law arise and if so endeavor to answer them. Unless the tribunal's inferences drawn on the basis of the given facts, are so unreasonable or that the Tribunal overlooks material circumstances and facts and renders a finding contrary to the documents, the jurisdiction under Section 260A, does not arise. Now as far as the explanation given through the letters said to have been initiated by Capitex are concerned, the Court notices that only one of them was directly received by the Revenue. The others were all furnished in the course of the assessment order and some even later during the appellate proceedings. Therefore, the origin of these letters is rather suspect. Secondly, and more importantly, these letters only clarify about past transactions. If indeed Capitex had entered into independent contracts for purchase or sale of Schweitzer helicopters or the Sokol helicopters, nothing prevented that concern i.e. Capitex from furnishing copies of such contracts; nothing prevented it also from furnishing some details as to the remittances or payments made to the concerned banks, in order to purchase such equipment or in the case where such contracts were not actually performed, show how contracts were rescinded at and if any amounts were paid to the vendors etc. Besides the fact that the letters shown are post-search, the lack of any primary evidence, renders these clarifications suspect. They do not inspire confidence-at least, not enough to dispel the inference drawn by the Revenue, based primarily upon the material seized during the course of the search and seizure proceedings. What is significant is that Shri Ashok Chawla knew the Discount Bank particulars; he even had several telephonic conversations with the Vice President of that Swiss bank. If indeed the assessee Ashok Chawla were only a consultant - not even an agent, the question as to his knowledge about his principal's accounts and his familiarity with the Bank of the principal, would never arise. Besides, how Ashok Chawla had the ability to operate the accounts is also a mystery. If this are kept in mind while reading the letters of Rocky. G. Peters to the treasurer of Schweitzer Corporation, (which had previously notified that the helicopters had been paid for and that the title had vested in him), the suspicion which the Revenue harbored initially, based upon probabilities, can be the basis for a finding that these transactions were at his behest and he was the controlling force or voice in Capitex. As a consequence, this court holds that there is no infirmity in the Tribunal's findings on these aspects. Ashok Chawla was examined u/s 131 of Income tax Act, by the investigation wing, and asked to give details of all the immovable properties owned by him in India and abroad either himself or in the name of wife, son or otherwise financed or in other capacity, money invested by him for the purchase of land and/or construction or renovation etc. In response he denied having made any investment in any construction or property abroad. The Tribunal noted that Anuj Chawla owned the Saket, Faridabad and Vasant Vihar properties; that the property at E-34, Greater Kailash I was owned by Vijaya Rajagopal; that of E-6 Anand Niketan was owned by Mr. Zal Akhtar; the farmland at Gwalpahari and 199/21A Faridabad was owned by Ms. Asha Jain and that Ashok Chawla owned 40/98 CR Park. Besides, it took into account the London property and said that it was in Ashok Chawla's possession;

Whether ad-hoc valuation can be faulted, when the assessee had failed to disclose the true value of his property - NO: HC

Whether presence of immovable properties in foreign country appeared during search, can be claimed by the assessee as 'rented', when the question of paying maintenance and the bills found in his possession during search proceedings remained unexplained - NO: HC

++ it is apparent that both the authorities disregarded the returns and the values disclosed in the returns filed by the owners, and rather presumptively added amounts towards what according to them were the true value of the properties, in line with the report of the DVO. This court is of opinion that such an approach defies logic and is manifestly erroneous. Notices were separately issued to Ms. Anu Chawla, Mr. Anuj Chawla and the other owners of the properties which were subjected to fresh valuation. Returns were filed by those parties. These returns disclosed the value (which in some cases, like in the case of Anuj Chawla and Anu Chawla) were over and above the cost disclosed in the returns. The AO partly accepted the additional value declared by these third parties/ relatives, but also at the same time - entirely based on the DVO's valuation, added some more. This approach is erroneous, because on the one hand, the higher value of the owner is accepted, only to be loaded with a further amount. The entire additional value (i.e the extra value disclosed in the block returns by the owner plus the further additional value, determined by the DVO) was brought to tax in Ashok Chawla's hands. This court is of the opinion that the findings of the ITAT in this regard are unsupportable in law. During the course of assessment proceedings, the assessee, Ashok Chawla, in answer to queries, clearly stated that the properties that were not in his name were not acquired by him. Yet, on the basis that the assessee must have earned substantial income which was not declared, both the AO and the ITAT embarked upon the venture of revaluation of the properties that did not belong to him and concluded that the difference between the transaction value reflected in the documents and the higher value determined was the sum total of his undisclosed income. This clearly betrays a contradictory approach; worse, in some cases, additions were made and confirmed in the hands of the owner and the assessee, Ashok Chawla, was subjected to protective assessment; in cases of others, such as Asha Jain and Zal Akhtar, the additions were made to his returns. However, as far as the addition of Rs. 1.50 crores made in respect of the London property is concerned, stands on a different footing. The search and seizure had yielded documents pertaining to the London flat. The explanation given by the assessee Ashok Chawla cannot be accepted. The position taken by him was that the property was rented. If so, the question of paying maintenance, and the bills found in his possession, remained unexplained. Furthermore, the documents seized also showed that insurance amounts were being paid. As the assessee did not disclose the true value of this property, the ad-hoc valuation at Rs. 1.5 crores cannot be faulted. The court notices that the ITAT had also given relief to the extent of restoring the addition to the extent of Rs. 25 lakhs to the AO for further inquiry and findings. Also, it deleted an addition made by the AO to the tune of Rs. 4 lakhs. No fault can be found with these. As a result, the ITAT's order is modified and the assessee is entitled to further relief to the extent of Rs. 3,08,70,124/- which has to be deleted from the sum of Rs. 7,37,30,266/-;

(See 2017-TIOL-748-HC-DEL-IT)