TaxTMI 
TaxTMI 
2003 (2) TMI 179
X X X X Extracts X X X X
X X X X Extracts X X X X
....als made out a case of undisclosed income against the assessee. Therefore, he issued notice under section 158BC on 7-3-1997, which was served on the assessee on 18-3-1997. The assessee filed the return in Form No. 2B on 26-5-1997. She admitted an undisclosed income of Rs. 2,31,098 and paid tax of Rs. 1,38,659. 4. Later on the Assessing Officer issued notice under section 143(2) on 29-5-1997 and set in motion the process of assessment of undisclosed income in the case of the assessee. The Assessing Officer found that the assessee is the proprietrix of three business concerns, namely M/s Bharani Yolkam International, M/s Bharani Rea] Estate and Sri Bala & Co. M/s. Bharani Yolkam International is doing business as commission agent for M/s The Karur Co-operative Handloom Export Production Project Limited. The said business was said to be commenced from the assessment year 1984-85. The rate of commission entitled for the assessee was 1096. The assessee claimed various expenditure in respect of the said business in the form of salary, rent, electricity and other establishment charges and had shown certain amounts as income from the said concern for all the assessment years included in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 9,500 1994-95 29,124 1995-96 41,116 1996-97 (Upto 19-1-1996) 17,794 ----------- 5,99,405 &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; -------- 1,16,000 --------- ----------------------------------------------------- 6. The other concern of the assessee, Sri Bala & Co., dealt with a property known as Loch End Compound in Kodaikanal. The assessee had entered into a purchase agreement with Indian Evangelical Lutheran Church Trust Association on 29-4-1991. The assessee had originally invested a sum of Rs. 10 lakhs by way of advance to the Trust for purchase of the property. The assessee also invested Rs. 5 lakhs thereafter. Even though the assessee has taken over the possession of the property, the property could not be registered in her name for a number of litigations. The assessee had spent money to develop the property for running the business of a guest house. She was earning rental income from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; --------- ----------------------------------------------------- It is to be stated that the above income has been worked out by the Assessing Officer on an estimate basis and not on the basis of exact accounts. 7. As per the statements and details furnished by the assessee, the source of investments made by her in various businesses were availed by way of loans from about 42 persons. She has furnished the details of those persons from whom she availed such loans. According to the Assessing Officer, the genuineness of those loans were not proved and accordingly he treated the entire loan amounts as assessee's undisclosed income. A total of Rs. 75,31,500 is taken as the undisclosed income of the assessee against the loan creditors. The year-wise particulars are as below: ----------------------------------------------------- Assessment year Amount  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; Amount Rs. ----------------------------------------------------- 1986-87 3,000 1987-88 3,500 1989-90 4,000 1990-91 42,500 1991-92 &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; Rs. ----------------------------------------------------- 1989-90 12,000 1990-91 17,000 1991-92 17,000 1992-93 34,000 1993-94 34,000 1994-95  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 1,112 1994-95 18,771 -------- 38,538 -------- ----------------------------------------------------- 11. While considering the undisclosed income for the assessment year 1991-92, the Assessing Officer has rejected the claim of the assessee that she had received a loan of Rs. 2 lakhs from P.C. Palaniswamy of Erode for making investments in Sri Bala & Co. and M/s. Bh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....--------------------------------------- Assessment year Amount Rs. ----------------------------------------------------- 1993-94 1,25,000 1994-95 1,25,000 1995-96 1,20,000 1996-97 (Upto 19-1-1996) 96,000  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; -------- 30,375 -------- ----------------------------------------------------- 16. For the assessment year 1996-97 the assessee had shown an opening capital of Rs. 60,000. This was not accepted by the Assessing Officer and the same is treated as the assessee's undisclosed income. 17. A sum of Rs. 32,150 was found in the course of search. Out of the above sum, the Assessing Officer treated Rs. 30,000 as the undisclosed income of the assessee for the assessment year 1996-97. 17A. As seen from the above paragraphs, the Assessing Officer has worked out the undisclosed income in the case of the assessee by estimating commission income; disbelieving the gifts received by the assessee; disallowing the opening capital; treati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 21,32,172 1992-93 21,00,513 -- 21,00,513 1993-94 14,21,854 -- 14,21,854 1994-95 13,44,123 -- 13,44,123 1995-96 21,76,616 -- 21,76,616 1996-97 19,95,644  ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Assessing Officer from M/s. Bharani Yolkam International, there is no basis for the Assessing Officer to make an addition of Rs. 3,55,361, thus making out the total commission income at Rs. 5,99,405. It is the contention of the assessee that there is no provision in a block assessment to work out undisclosed income on an estimate basis. The assessee also contends that there is a double addition of commission income to the extent of Rs. 38,538, as an equivalent amount has already been stated by the assessee in the cash summary filed before the Assessing Officer. The assessee also objects to the addition of Rs. 1,16,000 against the sale proceeds of thorn trees made by the Assessing Officer. It is the contention of the assessee that the Real Estate business contemplated by the assessee did not commence at that point of time and the assessee was only actually developing the land for future sale. In such circumstances, any income received by way of sale of thorn trees should go to reduce the capital cost of the assessee and therefore the Assessing Officer was not justified in treating the same as the undisclosed income of the assessee. It is the contention of the assessee that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the block period at various occasions, like birthdays and ceremonial functions. The assessee further submits that the estimate of capital gains at Rs. 1,50,650 on the sale of property at Karur is absolutely against law, as the land sold in question was agricultural land. Regarding the compensation received at Rs. 9,50,000 and treated by the Assessing Officer as undisclosed income, it is the case of the assessee that it is only a capital receipt in the nature of damage and does not constitute income at all. The assessee also submits that there is no basis for the Assessing Officer to treat Rs. 30,000 as the undisclosed income out of the sum of Rs. 32,150 found in the course of search. 20. All the above contentions raised by the assessee regarding each and every item of addition made by the Assessing Officer are described in ground Nos. 7 to 23 of the grounds of appeal filed by the assessee. 21. In addition to the grounds raised on the merits of the various additions made by the Assessing Officer in the impugned block assessment, the assessee has also raised additional grounds, which are legal grounds in nature. 22. The assessee has raised three additional grounds as foll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quiring the assessee to file the return and to process the same thereafter. Therefore, if a notice is served by invoking section 158BD, such notice need to be served earlier to at least 15 days before the assessment under section 158BC is completed. According to the learned Chartered Accountant, this is a necessary inference to be drawn from the provisions of section 158BC, although for framing the assessments for cases under section 158BD provisions have been made for a different time limit. In this case, no such notice with a period of at least 15 days was served on the assessee from the date in which the corresponding section 158BC assessment should have been completed. In this context, the learned Chartered Accountant relied on the decisions of the Hon'ble Supreme Court reported in Y. Narayana Chetty v. ITO [1959] 35 ITR 388, CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 and CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821. 24. Shri Lav Saxena, the learned Commissioner of Income-tax appearing for the Revenue contended that what is sought to be explained by the learned Chartered Accountant is only a legal gymnastics. The learned Commissioner pointed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....limit to complete the assessment under section 158BD in clear terms. The law has not specified any specific time period to issue a notice either in the case of 158BC assessment or 158BD assessment. But of course the provisions of law have adhered to the principles of natural justice and require the Assessing Officer to serve a notice on the parties by giving at least a period of 15 days to file the block returns. As the matters are so clear in the scheme of block assessment, we find that the inferential arguments made by the learned Chartered Accountant on the question of issue of notice and assumption of jurisdiction are by and large logical or academic. Accordingly, the first additional and legal ground raised by the assessee that there was no proper notice and there was no proper assumption of jurisdiction is rejected. 26. The second additional and legal ground raised by the assessee is that the Assessing Officer has not recorded the reasons before issue of the notice under section 158BD and if the reasons recorded in the assessment order were to be construed as the reasons so recorded, such reasons are vague and therefore not germane to assume valid jurisdiction under sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the last additional ground in the nature of a legal ground raised by the assessee is that all the particulars and information utilised by the Assessing Officer for framing the impugned block assessment were already furnished and informed to the Income-tax Department even before the search action. Therefore, the argument of the assessee is that to that extent there cannot be a case of undisclosed income against the assessee. 28. The learned Chartered Accountant argued on this point at length. He submitted that the Deputy Director of Income-tax (Investigation), Madurai had sent a statutory letter under section 131 of the Income-tax Act to the assessee on 1-3-1995. The assessee was asked to submit the particulars regarding her income-tax and wealth-tax assessments, sources of income, detailed activities carried out under the name "Sri Bala & Co." and copies of Bank accounts. The assessee has filed a detailed reply dated 11-3-1995 in response to section 131 letter issued by the D.D.I. Shri Venkatesan submitted that the assessee has furnished all the relevant information sought for by the D.D.I. the assessee has stated in her letter that so far she has not been assessed to Income-ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d Chartered Accountant invited our attention to the individual information filed through the above letter. The assessee has furnished the details of investments made by her in land, M/s. Bharani Yolkam Internationals, Bharani Real Estate, Sri Bala & Co., MBS Granites, Sri Krishna Silks, etc. totalling to Rs. 43,30,825. The assessee has also furnished the details of corresponding sources to the extent of Rs. 45,07,425. The sources were in the form of income from Bharani Yolk am Internationals for the period from 1985 to 1995, jewel loans, agricultural income from two acres of agricultural land at Velayuthampalayam during the period 1988 to 1993, loan from Mrs. Dharmambal, proceeds of the sale of thorn trees, guest house receipts from Sri Bala & Co. for the period from 1992 to 1995, share of agricultural income from 10 acres of agricultural land owned by the firm M/s. MBS Granites for the period 1992 to 1994, loans availed from business associates through assessee's husband and receipt on account of the sale of land belonging to Bharani Real Estate. The learned Chartered Accountant pointed out that as against a total investment of Rs. 43,30,825, the assessee has explained the source ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed authority under the Income-tax Act under any of the provisions of the Income-tax Act will amount to disclosure for the purposes of this Act. The details have been furnished by the assessee in this case through her letter dated 15-51995 to the A.D.I., Madurai, in response to his notice under section 131 of the Income-tax Act. The provisions of section 131 of the Income-tax Act gave powers to the Income-tax authorities discovery, production of evidence etc. A requisition made under section 131 is a statutory requisition made by a competent Income-tax authority. Information and details furnished by an assessee in response to such a statutory requisition made under section 131 is for the purposes of this Act and any resultant disclosure made by the assessee in the course of reply to the requisition issued under section 131 is absolutely a disclosure made by the assessee for the purposes of this Act. Therefore, except a few items, all other items considered by the Assessing Officer for the purposes of making the impugned block assessment have already been furnished by the assessee to the competent Income-tax Authority well before the date of search, which amounted to a valid disclosu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 (W.P. No. 2706 of 1997 & WMP Nos. 4539 & 4540 of 1997). Relying on the said decision, the learned Commissioner pointed out that disclosure means, disclosure made by an assessee by filing returns of income or wealth. In the present case, the assessee has not filed returns or income or wealth till the date of search carried out in the residential premises of her husband and her co-brother. Therefore, it cannot be held that the assessee has disclosed the particulars regarding assets and properties owned by her and the sources available with the assessee for acquiring those assets and properties and particulars of sources of income to the Income-tax Department. A disclosure becomes a disclosure for the purposes of block assessment only if the assessee had filed returns of income prior to the date of search and initiation of block assessment proceedings. The learned Commissioner submitted that the law has provided opportunities to the assessee for filing the returns of income, as stated in various provisions contained in section 139 of the Income-tax Act. The assessee has not furnished the returns. The assessee might have replied to the queries made by the Asstt. Director, but such co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the amplitude of the expression "undisclosed income" need to be understood as per the definition of the term given in the said Chapter. A reading of the definition of "undisclosed income" in section 158B(b), which is reproduced in paragraph 30 above, makes the point clear, inasmuch as that income or property, which has not been disclosed for the purposes of this Act, or income or property which would not have been disclosed for the purposes of this Act. 37. Disclosed for the purposes of this Act definitely means, disclosed for the purposes required by the various provisions contained in the Income-tax Act, 1961. Disclosed for the purposes of the Income-tax Act, 1961 does not mean, disclosed for the purposes of making an assessment alone. There is no such a restriction given in the definition of "undisclosed income", so as to presume that particulars furnished by an assessee through filing a return of income alone constitute disclosing the particulars for the purposes of this Act. The assessee might be furnishing details and particulars regarding his property and income in compliance of the requirements made by appropriate authorities invoking different provisions of the Income-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng paid the advance tax during the relevant previous year, it cannot be concluded that he had no intention to disclose the income to the department. It is in such a logical contemplation that the Hon'ble Court held that payment of advance tax itself does not establish an intend to disclose the income. The Hon'ble Court was in fact examining the difficult question of finding out the intention of the petitioner in that case. The petitioner was searched. He was taking shelter under the defence that he had paid advance tax. It was in that circumstance the Hon'ble Court held that the disclosure is to be made by filing the return. That observation of the Hon'ble Court cannot be disassociated from the intimate factual matrix of that case. The observation of the Hon'ble Court that the disclosure is to be made by filing the return is not a ratio laid down by the Hon'ble Court, but a supporting observation made by the Court in examining the real intention of the petitioner. Therefore, we do not think that the Hon'ble High Court of Madras has interpreted the expression "undisclosed income" in the said case by exposing the meaning of "disclosed for the purposes of this Act" 39. Therefore, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nites and Sri Krishna Silks, etc. The assessee has also furnished the details of the sources of funds necessary for making the above investments to the extent of Rs. 45,07,425. The sources included income from M/s. Bharani Yolkam Internationals by way of commission, jewel loans, agricultural income, loan from Mrs. Dharmambal, income from sale of thorn trees, guest house income from Kodaikanal property belonging to Sri Bala & Co., share in the agricultural income of 10 acres of land owned by MBS Granites, loans from business associates collected through assessee's husband, receipt on account of sale of land in the account of Bharani Real Estate, etc. etc. She has furnished the details of lands situated at various places in Trichy, Tanjore, Karur, Velayudhampalayam, etc. The assessee has furnished the details of the partners of the firm in which the assessee is also a partner. She has filed the details of commission receipts and income estimated therefrom. The assessee has furnished the names and addresses of all loan creditors. She has provided the details of jewellery loan availed by her during the relevant period. 42. The various items of undisclosed income worked out by the As....
X X X X Extracts X X X X
X X X X Extracts X X X X
....guest house at Kodaikanal, commission from Chenkumar Weavers Co-op. Production and Sales Society Ltd., sale of agricultural land, etc. to the Department through the said letter. 45. On a detailed examination of the particulars furnished by the assessee through her letter dated 15-5-1995 and the items of undisclosed income considered by the Assessing Officer in the impugned block assessment, what we find is that almost all the items considered by the Assessing Officer have been already covered by the letter dated 15-5-1995. Therefore, they come out of the purview of undisclosed income. 46. Following are the only items which do not find a place in assessee's letter dated 15-5-1995: 1. Opening capital of Rs. 60,000. 2. Cash found at the time of search Rs. 32,150 3. Gifts from relatives Rs. 1,20,700 4. Interest added under section 64 Rs. 30,375 5. Compensation received from Dr. Suriya Sekhar Rs. 9,50,000. 47. Let us examine whether the above listed items could be considered as undisclosed income or not. 48. The opening capital of Rs. 60,000 claimed by the assessee in her cash flow statements filed before the Assessing Officer has been disbelieved by the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rchase a property at Plot No. 4530, Y-201, 5th Avenue, Anna Nagar, Madras-40. The assessee has been residing in the said property paying rent for so many years. In the course of time she entered into an agreement with Dr. Suriya Sekhar, the owner of the property, that she would buy the property. But the agreement could not be carried out to its logical conclusion. The contract could not be performed. Therefore, the assessee approached the Civil Court for relief of specific performance. While the suit was so pending before the competent Civil Court, the parties reached into an out of Court settlement. As per the details produced before us, this out of Court settlement has been endorsed by the Civil Court and a consequential decree was pronounced. The assessee received a sum of Rs. 9,50,000 as compensation from Dr. Suriya Sekhar for relieving the property and also for the breach of contract committed by Dr. Suriya Sekhar. The Assessing Officer treated the amount was the undisclosed income of the assessee even without accepting the contention of the assessee that she had already spent Rs. 4 lakhs for the renovation of the building. 53. It is a fact that the assessee received the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed as income, nor is it a receipt in the nature of capital gains. It is a non-taxable capital receipt. Therefore, the said addition of Rs. 9,50,000 is also deleted. 54. Moreover, the assessee received the compensation only during the previous year relevant to the assessment year 1996-97. The search was on 19-1-1996. The time for filing the return of income for the assessment year 1996-97 was not expired at the time of search. The assessee had time to file the return till 31-3-1996; whereas the search was on 19-1-1996. The fact that the assessee was residing in the said property and there was a suit pending before the Civil Court in respect of the agreement of sale of that property were already brought to the notice of the Department through the letter filed by the assessee to the A.D.I., Madurai. When this matter is already informed to the department and the time for filing of the return has not been expired, there is no basis to presume that the assessee would not have disclosed the receipt of damages of Rs. 9,50,000 to the department. On this ground also, the receipt of Rs. 9,50,000 does not fit into the definition of undisclosed income provided in section 158B(b). 55. We h....