2010 (2) TMI 939 - HC - Income Tax

High Court rules on revenue vs. assessee issues, including HUF, property valuation, disclosed income.

Smt. Jyothi Kumari Versus Assistant Commissioner of Income-tax (Inv) Circle - 2

The High Court ruled in favor of the revenue on most issues, including the limitation for passing the block assessment order, the existence and ... Appeal before high court - filing of cross objection - maintainability of cross objections - Application of code of civil procedure - second round of appeal - held that:- We find that the question as to whether a cross-objection is tenable in a second appeal to the High Court was not a question, which was examined in this judgment of the Supreme Court, but it is only explaining the scope of Rule 22 of Order 41 and as to the precise scope of first part of Rule 22 which enables a non-appealing respondent in an appeal against an appealable decree to defend that part of the decree even by urging such other grounds which would have gone against the non-appealing respondent and not followed to hold that a cross-objection is tenable in a second appeal under Section 100 CPC. Insofar as the Income Tax Act is concerned we say it is fortiori so for the reason that even while adopting the procedure as indicated in Code of Civil Procedure for the purpose of disposal of a cross-objection the procedure is again made applicable insofar as, as far as may be, apply in the case of appeals under Section 260-A(1) and not in its entirety. Even the provisions of Rule 3 of Order 42 of CPC reading 'Reference in sub-rule(4) of Rule 14 of Order XLI to the court of first instance shall in the case of an appeal from an appellate decree or order, be construed as a reference to the court to which the appeal was preferred from the decree or order' also cannot make any difference to understand that the provisions of Rule 22 of Order 41 of CPC are all automatically applicable even in respect of an appeal under section 100 CPC for the reasons as spelt out above, while discussing the different authorities on this aspect. If the cross-objection is not even tenable in a second appeal under Section 100 CPC, it is more so in an appeal under Section 260A of the Act. - the principles of natural justice even otherwise, would require that if a person who has obtained some benefit or relief is to be deprived of that benefit or relief he should have an opportunity to defend that possession. The minimum that is expected in law and procedure is that a person is given an opportunity before being deprived of any benefit or relief which a person had already obtained. Source of acquisition - belong to HUF or its member - held that:- the explanation of the assessee to the effect that cost of acquisition of any asset is attributable to some income which was generated in the hands of the Hindu Undivided Family is not an explanation that should have found favour with the Tribunal and accordingly the same logic holds good when the assessee seeks to explain certain asset to be belonging to the Hindu Undivided Family and not to an individual and it was for the assessee to have made good the source of acquisition even in the hands of the Hindu Undivided Family also and when the existence of the very Hindu Undivided Family is not made good, the further question recedes to the background and accordingly the question as formulated in paragraph-17 of the memorandum of appeal has to be necessarily answered in favour of the revenue and against the assessee. Difference between valuation - deduction of 15% purporting to be due to the differences in legal valuation method and CPW valuation method - held that:- the difference between the two valuations is hardly around Rs.30,000/- and in such state of affairs, if the assessee's claim towards self supervision is found not tenable, we do not find the matter warranted such detail examination by the Tribunal and that too by giving various reasons. - Tribunal has unnecessarily interfered on this aspect of the matter with the view taken by the assessing officer and accordingly this question is also answered in favour of the revenue and against the assessee. Addition on account of cash credit - held that:- the actual figures as reflected in the bank statements are not in dispute and if the sum total is a possible amount which was not properly accounted for as found by the assessing officer and attributed to the entire block period, even after providing for withdrawals which is the method as worked out by the assessing officer, the Tribunal could not have found a way to relieve the assessee of the burden to make good the credits found in its account by adopting reasons such as that the amount are attributable to other activities of the assessee etc. - Decided against the assessee. Block Assessment - undisclosed income - assessment u/s 158BC - limitation under section 158BE - legal heir - burden to prove that assessee was HUF - held that:- if an income had already been disclosed in the returns filed prior to the search by the assessee, such income can be brought to tax only in the form of regular assessment or by reopening as permitted within the scope of section 147 of the Act and does not get into a block assessment order, but if an income had not been disclosed for earlier years, there is no way of the assessee filing a revised return for the earlier year, but it is only in the block period it has to be brought to tax and the only criteria for bringing to tax such undisclosed unassessed income of the assesses for the earlier period is only by the block assessment order and by no other method so long as the provisions of section 158BC of the Act are on the statute book. Mere fact that some of the bank statements did indicate the credits as reflected in the bank account of the assessee by itself does not constitute a disclosure of income by the assessee. Addition on account of peak cash credit - held that:- we cannot accept the argument that the method adopted by the assessing officer to aggregate the peak cash credit available in the two accounts for each of the year which again is arrived at after giving deduction, to the withdrawals and only the available balance at a given point of time and highest for the year in question does not in any way militate against the scheme of Chapter - XIV-B of the Act and it is only one method of arriving at a possible undisclosed income of the assessee for the block period. It is not as though if the assessee has accumulated the undisclosed income over a period of time, the undisclosed income for any part of it alone should be taken and not as discovered for any other part of the block period, so long as the same income is not taxed twice but only once. Irrespective of what the tribunal has done, the arguments for the assessee to accept only the peak cash credit for each year separately does not appeal to us for acceptance. :- Assessment of cost of construction in the hands of assessee's husband to the extent of 50% - held that:- the addition towards the cost of construction in the hands of the assessee to the extent of 50% as her contribution could have been considered only if it had not been considered elsewhere, but if the income had been considered in the hands of her husband, there was nothing left independently to examine any part of such investment in the house property in the hands of the assessee and therefore held that the addition was not good in law. - Decided in favor of assessee. Issues Involved:1. Limitation for passing the block assessment order.2. Existence and recognition of HUF (Hindu Undivided Family) and its income.3. Valuation of property and deductions allowed.4. Treatment of specific financial transactions as undisclosed income.5. Validity of protective assessment orders.6. Treatment of previously disclosed income in block assessments.Detailed Analysis:1. Limitation for Passing the Block Assessment Order:The assessee contended that the block assessment order dated 26.05.1997 was barred by limitation under Section 158BE of the Income Tax Act, 1961, as the search was conducted on 18.03.1996. The court examined whether the search continued until 16.05.1996 when the prohibitory order was lifted. The court concluded that the period of limitation was not rigid and could be extended in certain circumstances, such as the assessee seeking extensions to file returns. The court held that the assessment order was not barred by limitation, as the assessee's conduct in seeking extensions contributed to the delay.2. Existence and Recognition of HUF and Its Income:The assessee claimed that the income attributed to investments was from an HUF, which was not accepted by the Assessing Officer. The Tribunal accepted the existence of the HUF and attributed the income to it. However, the High Court found this reasoning flawed, stating that the burden of proving the existence of the HUF was on the assessee, not the Assessing Officer. The court held that the Tribunal's finding was perverse and unsupported by evidence, thereby ruling in favor of the revenue.3. Valuation of Property and Deductions Allowed:The Tribunal had reduced the valuation of the property from Rs. 17,16,000 to Rs. 12,44,100 by allowing deductions for local rates and self-supervision charges. The High Court disagreed, noting that the difference between the Departmental Valuation Officer's valuation and the assessee's valuer was minimal. The court held that the Tribunal had unnecessarily interfered with the Assessing Officer's valuation, ruling in favor of the revenue.4. Treatment of Specific Financial Transactions as Undisclosed Income:The Tribunal had deleted additions made by the Assessing Officer regarding various financial transactions, including Rs. 1,00,000 advanced to Smt. Lakshmi Gururaj Acharya and Rs. 14,55,550 as peak cash credits. The High Court found that the Tribunal had erred in its reasoning, particularly regarding the unexplained advances and peak cash credits. The court held that the Tribunal's findings were based on assumptions rather than evidence, ruling in favor of the revenue.5. Validity of Protective Assessment Orders:The court examined the protective assessment orders passed in the hands of the assessee's spouse, Smt. Jyothi Kumari, which resulted in an independent tax liability. The court found that the Tribunal had correctly concluded that the income assessed in the hands of the husband could not be reassessed in the hands of the wife. The court upheld the Tribunal's decision on this matter, ruling in favor of the assessee.6. Treatment of Previously Disclosed Income in Block Assessments:The assessee argued that certain amounts, such as Rs. 3,10,000 from the sale of a car, had already been disclosed in previous returns and should not be treated as undisclosed income. The High Court agreed, noting that the amount had been accepted by the revenue in earlier returns and could not be considered undisclosed income. The court ruled in favor of the assessee, setting aside the addition of Rs. 3,10,000.Conclusion:The High Court ruled in favor of the revenue on most issues, including the limitation for passing the block assessment order, the existence and recognition of HUF, and the valuation of property. However, the court ruled in favor of the assessee on the issue of previously disclosed income, specifically the Rs. 3,10,000 from the sale of a car. The court upheld the Tribunal's decision on the protective assessment orders, ruling that the same income could not be reassessed in the hands of both the husband and wife.