2017 (9) TMI 1299 - SC - Income Tax

Supreme Court upholds block assessment under Income Tax Act, emphasizes non-disclosure of 'reason to believe.'

M/s. N.K. Jewellers & Another Versus Commission of Income Tax, New Delhi

The Supreme Court dismissed the appeal challenging the validity of proceedings under Section 132 of the Income Tax Act. The Court upheld the block ... Concealment of income - search conducted on a train by the police authorities - Block assessment - employee of the appellant was returning from Amritsar by train and were found in the possession of ₹ 30 lacs cash in a search by Railway Police - appellant submitted that the proceedings initiated u/s 132 were invalid as it cannot be based on a search conducted on a train by the police authorities and, therefore, the proceedings initiated for block assessment are without jurisdiction - Held that:- This plea was not raised by the appellant before any of the authorities. Further, we find that in view of the amendment made in Section 132A of the Income Tax Act, 1961 by Finance Act of 2017, the 'reason to believe' or 'reason to suspect', as the case may be, shall not be disclosed to any person or any authority or the Appellate Tribunal as recorded by Income Tax Authority under Section 132 or Section 132A. We, therefore, cannot go into that question at all. Even otherwise, we find that the explanation given by the appellant regarding the amount of cash of ₹ 30 lacs found by the GRP and seized by the authorities has been disbelieved and has been treated as income not recorded in the Books of Account maintained by it. No infirmity in the order passed by the High Court. [2007 (2) TMI 685 - DELHI HIGH COURT] Issues:Validity of proceedings under Section 132 of the Income Tax Act based on a search conducted on a train; Jurisdiction of proceedings for block assessment period; Disclosure of 'reason to believe' or 'reason to suspect' under Section 132A; Disbelief of appellant's explanation regarding cash found by authorities.Validity of Proceedings under Section 132:The case involved an appeal arising from an order of the Delhi High Court regarding the validity of proceedings under Section 132 of the Income Tax Act. The appellant's employee was found in possession of a significant amount of cash during a search by the Railway Police. The appellant contended that the proceedings initiated under Section 132 were invalid as they were based on a search conducted on a train by police authorities. However, the appellant had not raised this plea before any of the authorities. The Supreme Court noted that the amendment in Section 132A by the Finance Act of 2017 prohibits the disclosure of 'reason to believe' or 'reason to suspect'. As a result, the Court concluded that it could not consider the validity of the proceedings under Section 132.Jurisdiction of Proceedings for Block Assessment Period:The appellant argued that the proceedings for the block assessment period from April 1, 1991, to June 3, 2000, were without jurisdiction due to the alleged invalidity of the Section 132 proceedings. The Assessing Officer had determined that the cash found represented sales of gold made by the appellant on earlier occasions. Despite the appellant's explanation that the employee went to Amritsar for gold purchases that did not materialize, the authorities concluded that it was concealed income. The Supreme Court upheld the assessment, stating that the appellant's explanation was disbelieved and the cash was treated as income not recorded in the Books of Account.Disclosure under Section 132A and Disbelief of Appellant's Explanation:The Court highlighted the amendment in Section 132A, emphasizing that the 'reason to believe' or 'reason to suspect' need not be disclosed. Additionally, the Court noted that the appellant's explanation regarding the cash found was disbelieved by the authorities. The cash of Rs. 30 lakhs seized by the authorities was considered as unrecorded income. Consequently, the Supreme Court found no infirmity in the High Court's order and dismissed the Civil Appeal.In conclusion, the Supreme Court dismissed the appeal, upholding the High Court's decision that no substantial question of law arose for consideration. The Court's analysis focused on the validity of proceedings under Section 132, jurisdiction for block assessment period, non-disclosure under Section 132A, and the disbelief of the appellant's explanation regarding the cash found by the authorities.