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2017 DIGILAW 959 (CAL)

Commissioner of Income Tax v. Dilip Singh

2017-12-07

ANIRUDDHA BOSE, ARINDAM SINHA

body2017
JUDGMENT : ARINDAM SINHA, J. 1. This appeal against order dated 31st December, 1999 passed by the Income Tax Appellate Tribunal “E” Bench, Kolkata in IT(SS)A no.122/KOL/1997 pertaining to block assessment period 1986-87 to 20th August, 1995, preferred by Revenue, was admitted on 12th June, 2000. 2. The relevant facts are that the business of the assessee is in the nature of operating transport vehicles. A search and seizure operation was conducted by the department in the premises of the assessee (both residential as well as business) on 6th and 7th August, 1996. In the block assessment made the first addition was in respect of three amounts aggregating Rs.1,83,923/-. The basis of this addition was that search revealed receipts of purchase of gold ornaments in the name of the assessee on different dates but the purchases were not entered in the relevant cash books of the assessee. Regarding investment in house property, it appears, though the Assessing Officer proposed addition of sum of Rs.23,33,000/-but he did not add back the same. 3. The Assessing Officer also added two amounts of Rs.2,06,000/- and 3,00,580/- upon discovery in search of details of cash payments during the financial year 1995-96 of Rs.2,06,000/- and in the period between 1st April, 1996 to 7th August, 1996 of Rs.3,00,580/-. These payments were not found as entered in the respective cash books and were added back as undisclosed income in the block period. 4. The next addition was aggregate sum of Rs.1,14,062/-. A part of the said amount though related to purchase of land for hotel project but was found to be unexplained expenditure. The other part was on account of interest on loan taken for repair of vehicle but diverted for purchase of capital asset. Another addition of aggregate sum of Rs.3,64,860/- was made as undisclosed income of the assessee for the financial year 1991-92 to 1995-96 being unexplained payments made to M/s. Gopal Credit Corpn., financier of vehicles. 5. Aggregate sum of Rs.4,82,127/- was added back on account of inflation of High Speed Diesel (HSD) and engine oil expenses. The Assessing Officer estimated profit on inflated amount at 20% to arrive at the said aggregate sum. 5. Aggregate sum of Rs.4,82,127/- was added back on account of inflation of High Speed Diesel (HSD) and engine oil expenses. The Assessing Officer estimated profit on inflated amount at 20% to arrive at the said aggregate sum. The Assessing Officer also added the amount of Rs.48,400/- of cash found during the course of search as undisclosed income for the period from 1st April, 1996 to 7th August, 1996 and aggregate amount of Rs.35,15,299/- in computation of further undisclosed income for the block period. 6. The following substantial questions of law involved in the case were framed. “(a) Whether on the facts and in the circumstances of the case the I.T.A.T. was justified in deleting the addition of Rs.1,83,923/- for the financial years 199495, 1995-96 and 1996-07 on account of jewellery holding that the same belonged to the 3 wives of the assessee and relying on the 3 returns filed by the 3 wives under the presumptive Tax Scheme but after the completion of block assessments whereas the purchase bills are in the name of the assessee along? (b) Whether on the facts and in the circumstances of the case the I.T.A.T was justified in disapproving the proposed addition of Rs.22,39,000/-on a/c of undisclosed investment in House Property on the ground that there is no material in this regard. The observations of the I.T.A.T is perverse in vies DVO’s report estimating costs of constructions at Rs.8,31,026/- for Assessment Year 1995-06 and apparent from the balance sheet filed by the assessee and whether the said decision of the I.T.A.T. is at all correct in view of the Judgment reported in 238 ITR (Cal)? (c) Whether on the facts and in the circumstances of the case the order of the I.T.A.T. is at all sustainable in as much as the I.T.A. T deleted addition on a/c of cash payment of Rs.2,06,000/- and Rs.3,00,580/- not reflected in the cash book of the assessee at the time of search and the assessee failed to explain the sources rather the assessee in his letter dated 14.08.1997 admitted that he had disclosed an amount of Rs.3,45,000/- as income from other sources in Assessment Year 1995-06 and the balance has been adjusted in different years? (d) Whether on the facts and in the circumstances of the case the I.T.A.T was justified in deleting the addition on a/c of unexplained expenditure in land amounted to Rs.1,03,729/- when the assessee himself failed to link this expenditure with any specific source of income? (e) Whether on the facts and in the circumstances of the case the I.T.A.T’s direction as regards addition of Rs.10,333/- being interest on the loan taken for land purchase is legally correct in view of the decision reported in 238 ITR 13? (f) Whether on the facts and in the circumstances of thecase the I.T.A.T. was justified in deleting the addition of Rs.35,15,299/- being the undisclosed income for the block period whereas the entire matter and/or issue should have been remitted back to the Assessing Officer for a re-examination in terms of the decision of Apex Court reported in 231 ITR 507? (g) Whether on the facts and in the circumstances of the case the I.T.A.T. was justified in deleting the addition of Rs.48,400/- found during the course of search?” 7. At the outset Mr. Agarwal, learned advocate appearing on behalf of Revenue submitted he was not pressing questions (b) and (e) as they related to matters of regular assessment. The said questions had been framed at the instance of Revenue relying on a decision of a learned Single Judge of this Court in Shaw Wallace and Co. Ltd. vs. Asst. CIT reported in (1999)238 ITR 13 . The view, extracted below, gave rise to the said questions in assailing the deletion made by the Tribunal leaving the sums to be assessed in the regular assessment. The said view is as follows: “The Assessing Officer is cast with a duty to make block assessment and use all his available jurisdiction and power in that regard. This includes the powers of sections 142 and 143 for getting information. The Assessing Officer is not permitted to use part of his powers for block assessment and reserve the balance for making regular assessment thereafter. He must use all his powers during the block assessment so that the computation is complete once for all and each rupee of total income which is in excess of the contingencies provided for in (a) to (f) to sub-section (1) of section 158BB gets taxed as undisclosed income. He must use all his powers during the block assessment so that the computation is complete once for all and each rupee of total income which is in excess of the contingencies provided for in (a) to (f) to sub-section (1) of section 158BB gets taxed as undisclosed income. The regular assessment relates only to the residuary duty of regular assessment which still vests in the Assessing Officer after completion of the block assessment. If block assessment is completed appropriately, in the manner indicated above, then and in that event, by the time such process is over the Assessing Officer will have concluded all his jobs leading up to and included in section 143(3) which relate to computation, and all that will remain will be determination of the sum payable by the assessee on regular assessment on the basis of such computation concluded in the block period.” 8. On appeal, the above view was rejected by a co-ordinate Bench of this Court, in Deputy CIT vs. Shaw Wallace and Co. Ltd., reported in (2001) 248 ITR 81, on the following reasoning. “……Considering the fact that if the regular assessment is not allowed there may be scope for escapement of assessable income. The interpretation suggested by learned counsel for the assessee, Shri Bajoria, will run counter to the intention of the Legislature. Therefore, we are in agreement with the view expressed by the Gujarat High Court in N. R. Paper and Board Ltd. v. Deputy CIT [1998] 234 ITR 733, and also the view taken by this court in the case of Caltradeco Steel Sales (P) Ltd.[2000] 243 ITR 643, that there can be a regular assessment in addition to the assessment made under Chapter XIV-B and both the proceedings that is assessment of income under section 143(3) and assessment in the block period under Chapter XIV-B can go on simultaneously. As income assessable under Chapter XIV-B is an “undisclosed income” while the income assessable under section 143(3) is not an “undisclosed income” that has been clarified in the Explanation that the undisclosed income relating to that block period shall not include the income assessed in the regular assessment. Therefore, if any income is assessed under the regular assessment that cannot be taxed twice while making the assessment of the block period. Therefore, if any income is assessed under the regular assessment that cannot be taxed twice while making the assessment of the block period. But in the returns if some deductions have been claimed which are not permissible under the provisions of the Act of 1961, they can be assessed and taxed only in the regular assessment……” 9. The rest of the questions are to be answered and we take them in order. Question (a) relates to the discovery of receipts, in respect of jewellery, for the sums of Rs.31,696/-,Rs.61,176/-and Rs.91,051/-respectively for financial years 1994-95, 1995-96 and 1996-97. These receipts are in the name of the assessee but the explanation offered was that they were partly for re-making and partly for purchase of gold ornaments. The total aggregate amount of Rs. 1,83,923/- was money belonging to the three wives of the assessee. The assessee being well-known in the locality no shopkeeper would bother to ask the names of the wives while preparing the bills, the ornaments belonging to the wives as paid for by them. The wives had filed Form 4A for financial years 1992-93 to 1995-96 under section 115K being special provision for computation of income (presumptive tax scheme) under the Income Tax Act, 1961. The statements, inter alia, pertaining to such forms were filed later on 20th November, 1998 with the returns for assessment years 1997-98, 1998-99 i.e., much after the date of search. 10. Mr. Agarwal submitted, for the purpose of block assessment it was not necessary for Revenue to rely either on sub-section(4A) of section 132 or section 292C, the latter inserted by Finance Act, 2007 with retrospective effect from 1st October, 1975. The assessee had failed to explain the receipts in respect of the jewellery and the amounts therein were included as undisclosed income under section 158B(b). The assessee had opportunity to explain under the provisions of sub-section (3) of section 158BA and clause (d) in subsection (1) of section 158BB. Purported explanation was that though the receipts were in the assessee’s name they were in respect of jewellery paid by and belonging to his wives. Such an explanation is not possible under the above provisions. The assessee had opportunity to explain under the provisions of sub-section (3) of section 158BA and clause (d) in subsection (1) of section 158BB. Purported explanation was that though the receipts were in the assessee’s name they were in respect of jewellery paid by and belonging to his wives. Such an explanation is not possible under the above provisions. The amounts mentioned in the receipts, being in the name of the assessee, were not disclosed in the assessee’s accounts or documents and as such were correctly included as undisclosed income in the block assessment under Chapter XIVB of the Act. Though such an explanation might be offered under section 69 but the provisions thereof were only applicable as far as practicable to a block assessment under the Chapter. 11. Even otherwise the disclosures made by the wives under the presumptive tax scheme cannot be taken as disclosure of funds applied for the purpose of purchasing or re-making jewellery. The subsequent statements filed with returns for later assessment years was obviously an attempt to assist the assessee in offering purported explanation, to avoid liability of tax. He relied on a judgment of the Supreme Court in the case of Smt. Tara Devi Aggarwal vs. CIT reported in (1973) 88 ITR 323 (SC). According to him the assessee had failed to offer any explanation as possible under the chapter. For the explanation possible under the chapter he relied on a judgment of the Madhya Pradesh High Court in the case of Dr. Brijesh Lahoti vs. CIT reported in (2006) 282 ITR 349 (MP), to the following portion in paragraph 8: “8)……This interpretation given by us finds support in the language used in sub-section(3) of section 158BA of the Act which provides, inter alia, that where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in subsection (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under section 139(1) of the Act for the previous year has not expired and such income or the transactions relating to such income are recorded on or before the date of the search or requisition of the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period……” 12. On question (c) Mr. Agarwal submitted, the sum involved was undisclosed income since the assessee had simply said the amounts relate to business expenditure. Such was no explanation at all. Here again the explanation tendered did not come within the scope of explanation possible under the chapter. The Tribunal had erred in law in deleting the amounts on being of the opinion that the transactions under consideration form part of the regular books of the assessee. He submitted the answer to this question would govern questions (d), (f) and (g) as well. 13. On question (a) Mr. Khaitan, learned senior advocate appearing on behalf of the assessee submitted, the explanation tendered by his client was inherently possible under the provisions of Chapter XIV-B, an obsolete Chapter of the Act. The said Chapter provided for special procedure for assessment of search cases but by itself was not a complete code. Section 158BH made other provisions of the Act applicable to the Chapter. That would include opportunity of being heard as under sub-section(3) of section 142, made expressly applicable by clause(b) in section 158BC. This opportunity cannot be confined to an endeavour to explain in relation to the books of accounts and documents of the assessee himself. The assessee could well seek to demonstrate and explain that in fact the income alleged to be undisclosed is neither income of the assessee nor undisclosed in the hands of another. He also relied on the proviso under clause (i) in sub-section (1) of section 132B to submit that while the amount of liability determined, on completion of assessment under Chapter XIV-B, could be recovered from seized assets but under the proviso a “person concerned” could make an application for release of such asset. According to him this militates against the interpretation sought to be given by the Revenue that an explanation regarding block assessment pursuant to search is confined to the assessee himself. Mr. Khaitan relied on several judgments: i. CIT vs. Calcutta Knitwears reported in (2014) 362 ITR 673 (SC). Reliance was placed on paragraph 41 wherein the Supreme Court said that under section 158BD, the existence of cogent and demonstrative material is germane to the Assessing Officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person as necessary for initiation of action under section 158BD. Reliance was placed on paragraph 41 wherein the Supreme Court said that under section 158BD, the existence of cogent and demonstrative material is germane to the Assessing Officers’ satisfaction in concluding that the seized documents belong to a person other than the searched person as necessary for initiation of action under section 158BD. He submitted, the block assessment procedure enabled assessment of undisclosed income of even a person other than the one searched. Such a provision could not have been enacted if the intention of the Legislature was that the explanation possible under the Chapter could only relate to the assessee himself. ii. Bipin Vimalchand Jain vs. Assistant Director of Income Tax(Investigation) and Others reported in (2008) 305 ITR 304 (Bom). Mr. Khaitan submitted, the facts were that during the course of search cash was found at the business premises of the assessee. The assessee explained that out of the sum found a part belonged to one Bipin Vimalchand Jain. Just because the search was carried out on 29th December, 2006 i.e., after 1st June, 2003 on and from when section 153A providing for assessment in case of search or requisition replacing the provisions of Chapter XIV-B in respect of search initiated after the 31st May, 2003 came into effect, it cannot be said that prior thereto the explanation possible under the amended section was not so under the said Chapter. He submitted, in this case the Bombay High Court was of the view that once the explanation given by the assessee, regarding the nature and source of the acquisition, was on verification found to be correct then the amount which belongs to another could not be retained by rejecting the application filed by the assessee for release of the seized cash. iii. Dialust vs. Deputy CIT reported in (2003) 261 ITR 456 (Bom). Mr. Khaitan submitted, in this case there was seizure of diamonds which the assessee sought to explain as belonging to brokers. Though the explanation was not accepted but what is important is the Bombay High Court did not take the view, as is urged by the Revenue, that such explanation is not possible in block assessment under the Chapter. iv. CIT vs. E. Sudhir Reddy reported in (2016)67 taxmann.com 177 (Andhra Pradesh). This judgment of the High Court of Andhra Pradesh, Mr. Khaitan submitted, is directly on the point. iv. CIT vs. E. Sudhir Reddy reported in (2016)67 taxmann.com 177 (Andhra Pradesh). This judgment of the High Court of Andhra Pradesh, Mr. Khaitan submitted, is directly on the point. The block period in this case was 1986-87 to 1996-97. He relied on paragraph 10 which is extracted below: “From a perusal of this, it becomes clear that the items, such as, money, bullion, jewellery and other residuary items, which constitute the wealth of income, would be treated as an undisclosed income, provided that such items were not disclosed for the purpose of the Act. It means such items were not the subject matter of any returns filed under the Act. Once the items mentioned in the definition were the subject matter of the returns filed under the Act, they cannot be treated as undisclosed income. Another aspect is that the returns need not be those filed by the concerned assessee alone. The provision does not indicate or that the returns insist covering those items must be that of the concerned assessee alone. It is too well established that the provisions of a taxation law, that too of the punitive nature, need to be interpreted in a strict manner. The intention of the legislature is to ensure that no undue hardship is caused to the assessee nor an assessee is subjected to any detriment contrary to law.” v. Hemant Kumar Ghosh vs Assistant CIT reported in (2015) 375 ITR 79 (Patna). Mr. Khaitan submitted, the Patna High Court decided in similar lines as in Dialust(supra) where though in the block assessment the explanation was not accepted but the Patna High Court, also like Bombay High Court, did not say that an explanation of the assessee that the seized article was neither his nor undisclosed income is not possible under the Chapter. 14. On question (c) Mr. Khaitan reiterated the submissions made on behalf of his client as recorded in the impugned order. 15. Chapter XIV-B of the Act was a special provision enacted by the Legislature for the purpose of assessments in search cases. The Chapter was introduced with effect from 1st July, 1995 and subsequently made inapplicable in cases of search initiated under section 132 or section 132A after 31st May, 2003, with effect from 1st June, 2003. 16. The said Chapter comprises of sections 158B to 158BH. Section 158B provides for the definition of, inter alia, undisclosed income. The Chapter was introduced with effect from 1st July, 1995 and subsequently made inapplicable in cases of search initiated under section 132 or section 132A after 31st May, 2003, with effect from 1st June, 2003. 16. The said Chapter comprises of sections 158B to 158BH. Section 158B provides for the definition of, inter alia, undisclosed income. Sections 158BC and 158BD provide for the procedure for block assessment of the assessee’s undisclosed income. Section 158BD provides for assessment in the case of undisclosed income of any other person. It is clear that the provisions of the Chapter were enacted for the purpose of assessing undisclosed income. It follows that when an assessee seeks to explain a discovery in search as not being his undisclosed income, he necessarily has to prove to the satisfaction of the Assessing Officer that the discovery relates to disclosed income, disclosed by way of record, on or before the date of search or requisition, in the books of accounts or other documents maintained in the normal course relating to the block assessment period. The interpretation given by the Madhya Pradesh High Court in Dr. Brijesh Lahoti (supra) cannot however be relied upon to urge that the explanation contemplated in sub-section (3) of section 158BA would exclude an explanation that the discovery is not the assessee’s income at all. It is only where the discovery relates to the income of the assessee that the provision regarding explanation about such income, for it not to be included in the block period as undisclosed income, comes into play. A satisfactory explanation regarding a discovery as not being the income of the assessee and further that the sum is disclosed income of another, as in this case, cannot be ignored by the Revenue on the contention that such an explanation is not possible under the Chapter. Mr. Khaitan’s submission regarding the assessee’s opportunity of being heard made expressly applicable by clause (b) in section 158BC and his reliance also on the proviso under clause (i) in sub-section (1) of section 132B, in the matter of an application made by a person concerned for release of seized assets, bear substance. 17. Mr. Khaitan’s submission regarding the assessee’s opportunity of being heard made expressly applicable by clause (b) in section 158BC and his reliance also on the proviso under clause (i) in sub-section (1) of section 132B, in the matter of an application made by a person concerned for release of seized assets, bear substance. 17. In Smt. Tara Devi Aggarwal (supra) the contention of the assessee was it cannot be said that where an assessee had been assessed to tax it was prejudicial to the interest of Revenue on the ground that no assessment could have been made in respect of income of which a voluntary return was made. While rejecting such contention, in the context of section 33B of Indian Income-tax Act, 1922, the Supreme Court said, inter alia. “………………This contention in our view is unwarranted by the language of section 33B. The words of the section enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the circumstances of the case justify when he considers that the order passed was erroneous in so far as it is prejudicial to the interests of the Revenue. It is not, as submitted by the learned advocate, prejudicial to the interests of the Revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the Revenue.” 18. Mr. Agarwal had relied on Smt. Tara Devi Aggarwal (supra) to urge that mere filing of return by the wives of the assessee subsequent to the search does not or did not give sanctity to the income declared by the wives as income earned. Such returns therefore could not be relied upon to rebut the presumption, possible under the Chapter, that the receipts being in the name of the assessee, the amounts involved were his undisclosed income. The fact that the returns filed by the wives of the assessee were accepted by the Revenue was relied upon by the Tribunal. Such returns therefore could not be relied upon to rebut the presumption, possible under the Chapter, that the receipts being in the name of the assessee, the amounts involved were his undisclosed income. The fact that the returns filed by the wives of the assessee were accepted by the Revenue was relied upon by the Tribunal. There is no doubt that such acceptance could have been set aside as erroneous and prejudicial to the interests of Revenue but such was not done. Furthermore, Mr. Agarwal, in pursuing his line of argument regarding the scope of explanation possible under the Chapter, had submitted he was not relying either on sub-section(4A) of section 132 or section 292C. As such his reliance on this decision need detain us no further. 19. We find that the Tribunal in dealing with this issue had accepted the explanation of the assessee that the amounts mentioned in the receipts found, which were in the name of the assessee, related to the disclosed income of his wives. The view taken by the Tribunal, on the facts and circumstances before it, we find, is a plausible view. Hence, we answer question (a) in the affirmative in favour of the assessee. 20. On question (c) aggregate sum involved is Rs.5,06,580/- comprising of details of cash payments during financial year 1995-96 and also from 1st April, 1996 to 7th August, 1996 as per seized document D8-54. The Assessing Officer while adding back this sum as unexplained expenditure stated that in course of search no explanation was offered except saying this related to business expenditure of the assessee. The amounts found had not been entered in the respective cash books. 21. The search having been conducted on 6th/7th August, 1996, the period 1st April, 1996 to 7th August, 1996 was included in the block assessment period. Return for financial year 1995-96 was due to be filed on 31st August, 1996. The cash book of the assessee was made up to 30th April, 1996 as on dates of search. The assessee had stated before the Tribunal that he filed copies of his regularly disclosed bank accounts which clearly showed huge cash withdrawals for making the payments. All such bank accounts were stated to be old accounts and were part of the regular accounts of the assessee for past years, the returns in respect of which had duly been submitted prior to the search. All such bank accounts were stated to be old accounts and were part of the regular accounts of the assessee for past years, the returns in respect of which had duly been submitted prior to the search. 22. The Tribunal was of the view, inter alia, that if the recordings of the regular books of accounts be not up to date, that does not mean the entries, which can be verified from other primary books, would relate to undisclosed income of the assessee for the purpose of block assessment. The transactions, it appeared to the Tribunal, pertained to the regular business process of the assessee which stood disclosed before the department. It held that simply because some transactions were recorded in some of the seized documents, per se, they do not become undisclosed transactions. The assessee had explained the expenditure as out of huge cash withdrawals made by him. On that basis the Tribunal was of the opinion the transactions under consideration formed part of the regular books of accounts of the assessee and therefore this addition was deleted. Revenue was unable to demonstrate before us that this opinion of the Tribunal, on the facts noted by it, was perverse. We accordingly answer this question and all others related to it in favour of the assessee. The appeal thus stands disposed of.