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2011 DIGILAW 1145 (KAR)

Commissioner of Income Tax v. R. Sridhar

2011-11-28

S.N.SATYANARAYANA, V.G.SABHAHIT

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JUDGMENT V.G. Sabhahit, J.—This appeal is filed by the revenue being aggrieved by the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as "ITAT" for short). Bangalore, in No. 176/Bang/1997, wherein the appeal filed by the revenue has been rejected by order dated 4-5-2005. The material facts in brief leading upto this appeal is as under: The assessee has submitted his return and on search of the premises of one Gopalakrishna, it was found that the assessee has received certain payment pertaining to J.S.S. College, Police Training College, House Building Society, Mysore and accordingly notice was issued to the assessee and proceedings were initiated under Sections 158-BC read with section 158-BD of the Income-tax Act, 1961 (hereinafter referred to as the "Act" for short). It was contended by the assessee that in response to the notice no incriminative material was found against the assessee and in the search made in the premises of Gopalakrishna and there was no basis for initiating proceedings under Sections 158-BC read with section 158-BD of the Act. It was also contended that in respect of the said tenants, deduction had been made at source and therefore the department was aware of the transaction and the transaction could not have included the undisclosed income. However, the Assessing Officer by order dated 31-10-1997 rejected the contentions of the assessee and pass an order adding the undisclosed income in a sum of Rs. 73,10,704/-and order issuance of demand notice for payment of tax of Rs. 43,86,422/-. Being aggrieved by the same, appeal was preferred by the assessee before the ITAT in ITA (SS) A. No. 176 (Bang)/1997. The ITAT by order dated 4-5-2005 upheld the initiation of proceedings under Sections 158-BC read with section 158-BD of the Act. There was no undisclosed income, as admittedly deduction has been made for making the payment and wherefore the department had the knowledge of payment and income cannot be said to be undisclosed and accordingly disallowed the addition made by the Assessing Officer amounting to Rs. 78,10,704/-. Being aggrieved by the order, appeal was preferred by Sridhar, as the original assessee, S. Ramachandran had died during the pendency of the assessment. Being aggrieved by the order by the ITAT dated 4-5-2005, this appeal is filed by the revenue. 2. This appeal has been admitted on 18.09.2006 to consider the following substantial questions of law: 1. 78,10,704/-. Being aggrieved by the order, appeal was preferred by Sridhar, as the original assessee, S. Ramachandran had died during the pendency of the assessment. Being aggrieved by the order by the ITAT dated 4-5-2005, this appeal is filed by the revenue. 2. This appeal has been admitted on 18.09.2006 to consider the following substantial questions of law: 1. Whether the Tribunal was correct in not taking into consideration that in the course of search material was detected which showed that the assessee had made deposits on 28-6-1986 and 17-6-1986 and on the date of maturity of this fixed deposits-, on 28-6-1997 and 17-6-1987 a sum of Rs. 50,000/- each had been received in all a sum of Rs. 1,50,000/-which was not disclosed in the return of income and in view of the presumption contemplated under Section 132 of the Act which has not been rebutted by the assessee the same was correctly treated as the income of the assessee and consequently recorded a perverse finding? 2. Whether the Tribunal was correct in holding that M/s. Rukmini Combines, the firm which had advanced amounts for production of films of Rs. 16,00,000/- and Rs. 12,49,566/-, Rs. 5,50,000/-and Rs. 1,49,079/- cannot be treated as the income of the assessee who was a partner in this firm even though this firm had no other source of income other than the that provided by the assessee and consequently recorded a perverse finding? 3. Whether the Tribunal was correct in not taking into consideration the fact that M/s. Rukmini Combines had two partners one the assessee and the other Sri. Gopal Krishna who was being paid a monthly expenses of Rs. 2,000/- to Rs. 3,000/- and this firm was no longer in existence and consequently, after dissolution it was only in the hands of the partner the undisclosed income of the firm can be assessed? 4. Whether the Tribunal was correct in proceeding to hold that the income received by the assessee for execution of liaison work of purchasing agriculture lands, converting them into non-agriculture purposes, thereafter obtaining plans cannot be treated as independent work when the agreement itself between the respective societies and the assessee contemplate such a course of action and consequently, recorded a perverse finding? 5. 5. Whether the Tribunal was correct in not taking into consideration the contract work executed by the assessee in respect of societies pertaining to civil works of formation of road, asphalting of road, digging of underground drainage, etc., cannot be independently assessed and the same should be treated as part of one whole contract without appreciating the bifurcation agreed to between the assessee and the societies in the written agreement and consequently recorded a perverse finding? 6. Whether the Tribunal was correct in proceeding to hold that the completed contract method of accounting should be adopted in the facts of the assessees case and the entire income received during the block period cannot be brought to tax as the work had not been completed during the block period. When admittedly in respect of assessment year 1987-88 the assessee had filed a return of income in the status of HUF declaring part of the income received indicating it was following cash system of accounting? 7. Whether the Tribunal took into consideration irrelevant facts and circumstances in proceeding to hole the various incomes detected after search cannot be brought to tax by not taking into consideration the various material considered by the Assessing Officer and consequently recorded a perverse finding? 3. We have heard the learned senior counsel appearing for the appellants and the learned counsel appearing for the respondent. 4. Learned senior counsel appearing for the appellants submitted that the Tribunal has held that initiation of proceedings is not based upon the material on record and wherefore the ITAT was justified in confirming the initiation of proceedings under Sections 158-BC read with 158-BD of the Act. Learned senior counsel further submitted that addition of Rs. 73,10,704/- was based upon the material seized in the search in the premises of Gopalakrishna. 5. Learned counsel appearing for the respondent submitted that no incriminating material was found to initiate proceedings under Sections 158-BC read with 156-BD of the Act and the incriminating material do not disclose the undisclosed income of Rs. 73,10,704/- was based upon the material seized in the search in the premises of Gopalakrishna. 5. Learned counsel appearing for the respondent submitted that no incriminating material was found to initiate proceedings under Sections 158-BC read with 156-BD of the Act and the incriminating material do not disclose the undisclosed income of Rs. 78,10,704/- as held by the Assessing Authority and the Tribunal having regard to the fact that there was deduction of tax at source in making the payment under the contract, the department must have presumed to have knowledge of the transaction and the transaction cannot be said to be undisclosed as held by the decision of this Court relied upon by the learned senior counsel appearing for the appellants. 6. We have given careful consideration to the contentions of the learned counsel appearing for the parties and scrutinised the material on record. It is well settled that when the proceedings are initiated under Sections 158-BC read with 158-BD of the Act, the order of assessment can be made only upon the material found during search against the assessee as regular assessment would have already been made and the assessment under Sections 158-BC read with 158-BD of the Act would be an additional assessment based on the material found during search and the decision relied upon by the Assessing Officer cannot go beyond the material found during search. In the present case, it is clear from the scrutiny of the material on record that while search was conducted in the house of Gopalakrishna, certain materials was found which reveal that the assessee had not disclosed the income received for executing the contract pertaining to JSS College and Police Training College, Housing Board Society, Mysore, The Tribunal has held that initiation of proceedings was justified and the assessee has not preferred any appeal against the said finding. During the search, the Assessing Officer added Rs. 1,50,000/- towards the fixed deposit made by the assessee as per the material seized in the premises of Gopalakrishna. However, we find from the material on record that all that was found during the search of the premises of Gopalakrishna was certain chits and documents which does not conclusively indicate undisclosed income by the assessee, adding of Rs. 1,50,000/- towards the fixed deposit made by the assessee as per the material seized in the premises of Gopalakrishna. However, we find from the material on record that all that was found during the search of the premises of Gopalakrishna was certain chits and documents which does not conclusively indicate undisclosed income by the assessee, adding of Rs. 1,50,000/- by holding that the said amount has been kept in fixed deposit by Ramachandra is not at all based upon the seized material as what was found was not the fixed deposit receipt and further in view of the settled principles of law that when deduction had been made at source while making the payment, the receipt cannot be said to be undisclosed as the department would aware the deduction made regarding payment and the payment thereof as intimation would be sent to the department as held by this Court in the matter of the CIT v. Smt. Geetha P. Hegde [IT Appeal No. 3043 of 2005, dated 10-3-2010] and in the matter of CIT v. H.E. Mynuddin Pasha [2011] 202 Taxman 1 (Mag.)/[2011] 13 taxmann.com 147 (Kar.) and concerned cases dated 27.07.2011 and the said decision has also been followed by us in ITA No. 2608/2005 and i.e. view of the said decisions, it is clear that the finding of the Tribunal that when, the deduction has been made at source while making payment, the said amount received by the assessee cannot be said to be undisclosed as the department would be aware of the payment. The Tribunal was also justified in setting aside the deletion of Rs. 1,50,000/- by-the Assessing Officer in respect of the fixed deposit kept in the name of S. Ramachandran and a sum of Rs. 73,10,704/- towards the amount received from the contract. The Tribunal is also justified in holding that the amount received in advance was by the firm and not by the partner, S. Ramachandran and accordingly we answer all the substantial questions of law against the revenue and in favour of the assessee and we hold that the appeal is devoid of merits and accordingly we pass the following: ORDER The appeal is dismissed.