2017 (3) TMI 276 - HC - Income Tax

High Court limits Assessing Officer's jurisdiction under Section 158BC of Income Tax Act, upholds ITAT's decision.

Commissioner of Income Tax, Delhi (central-I) Versus Pinaki Misra & Sangeeta Misra

The High Court held that the Assessing Officer (AO) did not have jurisdiction to make additions under Section 158BC of the Income Tax Act, 1961, as they ... AO jurisdiction to pass the order under section 158BC - Held that:- Addition in respect of professional receipts revenue in the course of the present proceedings was unable to pinpoint any material, which had been found during the course of the search vis-a-vis the point at issue, thereby, the aforesaid figures arrived at cannot be brought to tax as “undisclosed income” in the block assessment, within the meaning of section 158BB(1). Therefore, in the absence of any material found during the course of search, the post search enquiries made by the AO would become futile since this would only be relevant for a regular assessment u/s 143(3) and not in respect of a block assessment. Addition towards suppressed rent - Held that:- When all material relating to the so called “suppressed rent” was available with the AO, in the first instance when the assessment for the relevant year was completed and no addition was made, the exercise by the AO, in deducing that the assessee must have earned some income (based on the expenditure estimated for his foreign travel and the estimate of his professional income) which was the suppressed rent, and determined, is twice removed from reality. The error in this kind of assessment was compounded, given that no material relating to such “suppressed rent” was discerned during the search or from the seized materials. Thus, this assessment falls outside the jurisdiction of the AO, since the block assessment conducted is not based on relatable evidence as required under section 158BB(1), but on presumptions made by the AO, as was highlighted in R.M.L. Mehrotra (supra), how an assessment based on search alone that does not attribute material evidence found therein or other information available with the AO relating to such materials cannot constitute block assessment. Receipt of two gifts received by the assessee and the gift to the Assessee’s wife - Held that:- Where an income and assets are disclosed in the books of account and no incriminating material is found during search and seizure, addition in the block assessment is not valid. Therefore, the gifts received by the assessees from Jhanwar Lal Kothari, as well as the gift from Shri R. K. Jatia fell outside the purview of block assessment, and the AO has no jurisdiction to bring to tax the said sums. See CIT v. Jupiter Builders P. Ltd. [2006 (9) TMI 127 - DELHI High Court ] Appeal decided in favour of assessee Issues Involved:1. Jurisdiction of the Assessing Officer (AO) under Section 158BC of the Income Tax Act, 1961.2. Validity of additions made by the AO on various grounds, including loans, foreign trips, professional receipts, household expenses, unexplained gifts, suppressed rent, and undisclosed sources.Issue-wise Detailed Analysis:1. Jurisdiction of the Assessing Officer (AO) under Section 158BC:The primary question was whether the AO had the jurisdiction to pass the order under Section 158BC of the Income Tax Act, 1961. The High Court emphasized that the scope of block assessment under Chapter XIV-B is limited to materials unearthed during the search. The court cited precedents such as CIT Vs. Ravi Kant Jain and Bhagwati Prasad Kedia Vs. CIT, which held that block assessments are not substitutes for regular assessments and are confined to evidence found during the search. The court concluded that the AO did not have jurisdiction to make additions based on materials not found during the search.2. Validity of Additions Made by the AO:a. Loans:The AO made additions of Rs. 1,72,000 and Rs. 2,50,000 on account of loans from Shri S.K. Chakraborty. The ITAT held that these amounts were already disclosed in the regular assessment and thus could not be considered 'undisclosed income' for the block period. The High Court upheld this view, stating that the AO lacked jurisdiction to make these additions under Section 158BC.b. Foreign Trips:The AO added Rs. 75,00,000 for foreign trips based on an ad-hoc estimate. The ITAT found that the AO did not make detailed inquiries and directed a re-computation. The High Court noted that the additions were based on requisitioned passports, not materials found during the search, and thus fell outside the AO's jurisdiction under Section 158BC.c. Professional Receipts:The AO added Rs. 9,50,000 for professional receipts based on estimates and non-production of books. The ITAT allowed a relief of Rs. 7,50,000, stating that no incriminating material was found during the search. The High Court agreed, emphasizing that post-search inquiries without material found during the search could not justify the additions.d. Household Expenses:The AO added Rs. 10,80,000 for household expenses based on estimates. The ITAT deleted these additions, finding them disproportionately high and based on assumptions. The High Court upheld this decision, stating that the AO's estimates were not supported by evidence found during the search.e. Unexplained Gifts:The AO added Rs. 90,00,000 for unexplained gifts received by the assessee and Rs. 38,71,507 for a gift to the assessee's wife. The ITAT deleted these additions, noting that the gifts were disclosed in previous assessments. The High Court agreed, stating that the gifts could not be considered 'undisclosed income' as they were already disclosed to the Revenue.f. Suppressed Rent:The AO added Rs. 28,70,000 for suppressed rent of a property. The ITAT deleted this addition, finding no material evidence of suppressed rent during the search. The High Court upheld this view, stating that the addition was based on assumptions and not on materials found during the search.g. Undisclosed Sources:The AO added Rs. 5,00,000 for alleged income from M/s Triad Associates and Rs. 6,00,000 for differences in professional receipts and cash in hand. The ITAT deleted these additions, finding no incriminating material during the search. The High Court agreed, stating that the AO lacked jurisdiction to make these additions under Section 158BC.Conclusion:The High Court concluded that the AO did not have jurisdiction to make the additions under Section 158BC as they were not based on materials found during the search. The court upheld the ITAT's decision to delete the additions and dismissed the Revenue's appeals.