TaxTMI 
TaxTMI 
2006 (4) TMI 239
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....2,46,840 as 'income from undisclosed sources'. The appeal preferred by the assessee before the CIT(A) was dismissed vide order dt. 28th Feb., 2001. 3. In the present appeal, the appellant has challenged the taxability of Rs. 3,02,46,840 as income of the appellant from undisclosed sources. The appellant's submissions in respect thereof are as under: 1. That the lower authorities have erred in including alleged income of Rs. 3,02,46,840 in the total income of the appellant. 2. That the sum of Rs. 3,02,46,840 is not income of the appellant at all 3. That the sum of Rs. 3,02,46,840 has neither accrued nor arisen nor received by the appellant and hence the inclusion of such sum in the total income is wrong. 4. That the lower authorities have erred in determining the alleged income of Rs. 3,02,46,840 without any evidence, materials and, therefore, such determination is perverse in law. 5. That no income could accrue, arise or considered to be received on mere admission by an assessee. 6. That the appellant alleged admission of certain income related to the floppies (seized from another person) cannot clothe the IT authorities with jurisdiction to determine any income....
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....5th Jan., 1996. During the course of search, three computer floppies were seized from the residence of Shri Anil Jain. On the same date, statement of the appellant was recorded by the Enforcement Directorate. In the year 1996, the appellant was facing prosecution in number of cases in connection with search carried out in the year 1991 at the residence of one Shri J.K. Jain, an employee of BEC Impex International (P) Ltd. In addition to the aforesaid, Shri S.K. Jain was also facing prosecution in various complaints filed under s. 56 of FERA, 1973, by the Enforcement Directorate. Four such complaints were filed during the period January, 1996 to August, 1996. One complaint each was filed on 25th April, 1996, 20th June, 1996, 11th July, 1996 and 17th Aug., 1996. It will not be out of context to mention that s. 56(I)(i) of FERA provides for punishment with imprisonment which shall not be less than 6 months but which may extend to 7 years and with fine. Above all, the appellant's income-tax proceedings for the asst. yrs. 1988-89 to 1992-93 were also finalized in the year 1996. The Dy. CIT, Spl. Range, Bhilai, completed the assessments under s. 143(3) r/w s. 147 of the Act as under: ....
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....sion, agony and harassment, and to avoid entering into protracted litigation and to buy peace, the appellant was advised to offer, without admitting, certain income as 'undisclosed income' in order to cover the transactions recorded in the seized computer floppies. Consequently, the appellant, in the return of income filed for the assessment year under consideration, on 2nd Sept., 1996, offered for tax Rs. 1 crore as its income from undisclosed sources with reservations. The said offer was made by the appellant merely to buy peace and to avoid entering into litigation and without admitting that the seized floppies belonged to the appellant and/or the transactions recorded therein related to the appellant. The fact that the appellant merely offered, without admitting/surrendering any income in the return of income, is clearly evident from the caveats/conditions given in the note attached with the return of income. The learned counsel elaborately perused the said notes reproduced in extenso hereinbelow: "Notes: 1. The Enforcement Directorate seized three computer floppies from the residence of Sh. Anil Jain, 118, New Friends Colony, New Delhi, on 15th Jan., 1996. 2. The copi....
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....secution' proceedings being initiated against the assessee." Thereafter, assessment proceedings were initiated under s. 143(3) of the Act against the appellant. In the assessment proceedings, the AO failed to judiciously appreciate the offer made by the appellant and regarded the same to be unqualified/unconditional and unequivocal surrender/admission of income. During the assessment proceedings, the AO vide letter dt. 6th Oct., 1998 provided copies of the printouts of the seized floppies to the appellant. In response thereto the appellant, vide letter dt. 27th Feb., 1998, reiterated the offer made in the return of income. In the assessment proceedings, the AO, however, sought to assess substantial income, much beyond the offer made by the appellant in the return of income, as 'undisclosed income' of the appellant. At this stage, the appellant realized that the Department is again prejudiced and hell-bent to make an exaggerated, high-pitched assessment in respect of non-existent income, by taking advantage of the appellant's offer of Rs. 1 crore. It was clear at that stage that the AO had totally disregarded the conditions attached to the offer and was proceeding on presumptions th....
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.... It is therefore informed that income of rupees one crore admitted in the return of income, erroneously, was in order to buy peace under the circumstances prevailing then. In case your honour, for not so reasonable grounds, hold that certain income has accrued to the assessee on the basis of the recordings in the floppy, the sums seized should follow to be the resultant of the same. This position is completely denied as belonging to the assessee. No income is assessable in the assessee's hands. In case of adverse decision the natural corollary of money should also be considered as such sum available with the Department for the recovery of the demand. This submission is being made to demonstrate the erroneous conclusion of the Department linking the recordings in the floppies to the assessee. When some recordings appear on the Department side of the recordings of the floppy and there are recordings on the credit side of the same record, then assuming, while denying, those recordings represent money transactions, pertaining to the assessee, the sums as per such recordings available at any one time on peak basis can alone be the sum available to the person. This position has bee....
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....me was regarded as surrender/admission on the part of the appellant. Consequent thereto, the huge addition was made in the hands of the appellant, which is not supported by any evidence/material. 5.2 On perusal of the note appended to the return of income as reproduced above, the Hon'ble Bench will kindly appreciate that in the said note the appellant has nowhere admitted/surrendered that the seized floppies and/or any income based on the contents of such floppies were assessable in the hands of the appellant. The highlighted portion of note, which is emphasized, clearly indicates that the appellant merely offered on being assessed at an undisclosed income of Rs. 1 crore to buy peace and to avoid litigation. This is particularly evident from para 6 of the note. In para 7, the appellant had categorically reiterated/emphasized that the appellant does not admit any income and the position/offer made by the appellant in the return is only to buy peace, etc. 5.3 Despite the aforesaid caveats in the note attached to the return of income, the conditional/qualified offer made by the appellant was presumed/treated as surrender/admission on the part of the appellant, which was not so. ....
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.... less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, the tax paid by the assessee must be accepted as it is. and in the event of the tax paid being in excess of the tax liability duly computed on the basis of the return furnished and the rates applicable. the excess shall be refunded to the assessee, since its retention may offend Art. 265 of the Constitution. We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit byway of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceedings. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, includ....
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....e the correct state of facts. Abdul Qayume vs. CIT (1990) 86 CTR (All) 66 : (1990) 184 ITR 404 (All): In this case the assessee filed the IT return declaring capital gains treating himself to be owner of property. In the preceding year the assessee had been taxed on the property income. The assessee challenged the assessment of capital gains in appeals contending that he was not liable to capital gains tax. Their Lordships held that an admission cannot be the foundation for an assessment and it is always open to an assessee to demonstrate and satisfy that a particular income was not taxable in his hands and it was returned under an erroneous impression of law in the return of income. Federal Bank Ltd. vs. State of Kerala (1995) 124 CTR (Ker) 355 : AIR 1995 Ker 62: Held that an admission is no doubt a relevant piece of evidence, but it is never conclusive. It is all the moreso in the matter of an assessment to tax which has to conform to Art. 265 of the Constitution of India. So far as an assessment to tax is concerned, it is open to the assessee who made an admission to show that it is incorrect. If he puts forward such a plea, he should be given an opportunity to show that i....
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....held that even if income was assessed in one assessment year in the hands of the HUF it was still open to the assessee in a subsequent year to prove that income did not belong to the family but was assessable as individual income. Dy. CIT vs. Sreeni Printers 67 STC 279 (Ker): Assessee disclosing turnover in the return, claimed the same to be not assessable under Kerala Sales-tax Act. The Court held that under fiscal law there is no scope to set up the plea of estoppel." 5.7 In all the aforesaid decisions, it will be noticed that the assessee resiled from the position wrongly taken in the return of income and the Court upheld the assessee's right to do so. Reference in this regard was also made to the following decisions wherein the income offered for taxation in the return and assessed on that basis was subsequently challenged in appeals and the Courts upheld the assessee's right to do so. 5.8 In the case of National Thermal Power Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC), the assessee offered for tax interest income and the same was assessed by the AO. Before the Tribunal, the assessee, for the first time, raised an additional ground challenging the a....
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....ches of the Tribunals have, thus, consistently held that income cannot be assessed in the hands of the assessee merely on the basis of declaration of such income in the return of income. It has been held that an assessment of income has to conform to the provisions of the Act and it is open to the assessee to resile from the position wrongly taken in the return of income. The assessee can show that the position taken in the return was on an erroneous impression of the facts or law. 5.12 In the following cases it has been held that a lawful assessment has to be based on material and such assessment cannot be done merely on the basis of admission, without there being corroborative evidence/material on record: "In Dy. CIT vs. Ratan Corporation (2005) 197 CTR (Guj) 536, the Tribunal deleted the addition made on the basis of statement in light of retraction. The Court upheld the order of the Tribunal and observed that it was the duty of the AO to make further enquiry. Smt. Ranjnaben Mansukhla1 Shah vs. Asstt. CIT (2004) 83 TTJ (Rjt) 369: Held that additions made only on the basis of disclosure statement normally should not be confirmed in the absence of corroboration. In the ey....
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....n the return of income, which were accepted by the AO without conducting any enquiry. The Supreme Court upheld the order of the CIT setting aside such assessment order on the ground that assessments were completed in post-haste without making any enquiry or investigation into the antecedents of the assessee. The Delhi Tribunal in the case of HCL Employees & Investment Co. Ltd. held that there can be no assessment of convenience. Income has to be assessed in the hands of the right person, to whom such income legally pertains/belongs. Based on the aforesaid, it is the respectful submission of the appellant that there can be no dispute with the following propositions of law: (a) An assessment of income under the Act has to conform to the provisions of the Act. There can be no assessment of a non-existent income or an income which is not taxable under the provisions of the Act. (b) The assessment of income has to be made on the basis of material/evidence and not de hors the material/evidence available on record. (c) There can be no assessment of income merely on the basis of admission/ surrender of the assessee (d) An assessee having made an admission/surrender of income....
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....l, 1996, resulting in unrealistic, phenomenal and huge income-tax demands running into crores of rupees. Faced with such difficult situation and surrounding circumstances, the appellant offered to be assessed at a particular sum without making any surrender/admission of income. The offer made by the appellant was erroneously treated as admission/surrender on the part of the appellant, which is without any basis. Even further, it is submitted that assuming without admitting that the appellant had surrendered/admitted any income in the return of income, the AO erred in making assessment solely on the basis of such surrender/admission despite the fact that the appellant resiled/retracted from such qualified/conditional surrender/admission made in the return of income. 5.17 The AO completed the assessment in the hands of the appellant solely on the basis of the so-called surrender/admission on the part of the appellant de hors any material/evidence of record to establish any undisclosed income in the hands of the appellant. The facts being relied upon by the AO, in fact, support the case of the appellant that the seized floppies did not belong to the appellant. The following facts m....
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....ome belonged to the appellant. 5.19 In the light of the aforesaid, it is respectfully submitted that the addition of Rs. 3,02,46,840 is without any. basis/material on record and, therefore, the entire addition calls for being deleted in toto. 6. On the other hand, the learned standing counsel for the Revenue submitted that there was a clear confession/surrender of Rs. 1 crore as his income by the assessee in the return of income. He submitted that in view of the confession/surrender, it can be regarded as a voluntary surrender/admission by the assessee. He, therefore, submitted that the AO, in the present case, has rightly treated the conditional otter of the assessee as surrender by the assessee. In the assessment order, the learned AO has correctly proceeded on an assumption that the assessee had admitted. the ownership of the seized floppies before the FERA authorities. The copies of the printouts of the floppies as received from the Enforcement Department were made available to the assessee and an opportunity was also provided to the assessee to revise his estimate of income from other sources on perusal of the transactions as noted in the printouts. On receipt of the rep....
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....n from the assessee who did not care to offer any explanation in this regard. Since the assessee did not extend any co-operation, the AO prepared two trial balances on the basis of two floppies, named by the AO 'Y' and 'Z', respectively, and worked out the aggregate of the floppy-wise total credit balances to Rs. 3,02,10,860, and he submitted that this amount was rightly treated as unexplained income of the assessee from other sources under s. 68 of the Act and after deducting the disclosed income from this source of Rs. 1 crore, the addition of Rs. 2,02,46,840 was made to the total income of the assessee. 6.2 He submitted that the contentions of the learned counsel for the assessee are devoid of substance. The assessee made voluntary disclosure to the extent of Rs. 1 crore exclusively with reference to the three floppies seized by the Enforcement Directorate on 15th Jan., 1996 knowing fully well that the transactions recorded in those floppies relate to the assessee himself. He submitted that the assessee did not come clear and rendered no co-operation at all to the AO to find out the true nature of the transactions, the source of the same, the name and addresses and other part....
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....ly sustained the inclusion of Rs. 3,02,10,860 as unexplained income from other sources which includes the disclosure of rupees one crore made by the assessee. He submitted that the order of the learned CIT(A) does not call for any interference and the same may be upheld. 7. We have considered the rival submissions in the background of the facts and circumstances of the case and perused the material available before us. We have also deliberated upon the case law cited on behalf of both the parties. 7.1 The only issue involved in the present appeal is regarding the taxability of Rs. 3,02,46,840 as income of the appellant from 'undisclosed sources'. On a perusal of the income-tax assessment order passed by the AO, it is seen that the AO has proceeded to assess the above income in the hands of the assessee on the basis of certain floppies seized from the residence of Shri Anil Jain by FERA authorities. The offer made by the appellant to bring to tax a sum of Rs. 1 crore of income in the return has been treated as a voluntary surrender of income. Further, the AO further proceeded on the basis that the assessee had accepted the ownership of the seized floppies before the FERA autho....
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....idered, purely for assessment purposes and with a reservation, as transactions eligible to income-tax. 7. The assessee does not admit that the transactions are of income and the position taken by the assessee in this return is only to buy peace, etc., etc. 8. The data indicates some appearing to be receipts and some appearing to be outgoings. All the transactions are considered, only for the purpose of assessment and in this return of income, as of income nature. While denying the said position the transactions have been considered as one man's account and the peak of the same worked out. Such working has only been done as a matter of caution, on the basis of some scanty details made available to the assessee. This may have to be revised, modified, downgraded, upgraded upon the availability of the entire perfect data. The Revenue may assist the assessee in this regard. 9. The income of Rs. 1,00,00,000 (Rs. one crore only) shown under the head income from other sources is offered to cover such transactions. The income has been estimated on the basis of memory at a figure which would be maximum amount discernible at any particular point of time. 10. Advance tax on this....
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.... 7.5 On the basis of the above, we are of the considered view that in the present case, the AO clearly proceeded on an erroneous premise that the assessee had admitted the ownership of the seized floppies. 7.6 We also find merit in the alternative contention of the learned counsel for the assessee that even assuming, without admitting, that the assessee had surrendered/admitted certain income, the assessee having resiled therefrom during the course of assessment proceedings, such surrender could not have been the basis for assessing the income on the basis of the seized floppies. 7.7 Our attention was specifically invited, in this regard, to the letter dt. 8th Feb., 1999 filed by the assessee during the assessment proceedings. The contents of the letter read as under: "The assessee has received the above referred notice for the asst. yr. 1996-97. On the basis of the floppies seized from the residence of one Shri Anil Jain of Friends Colony, New Delhi, by the Enforcement Directorate on 15th Jan., 1996, certain inferences are being attempted. The assessee, in order to buy peace, was offering to pay tax on an income of rupees one crore. Though the aforesaid admissi....
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....de of the same record, then assuming, while denying, those recordings represent money transactions, pertaining to the assessee, the sums as per such recordings available at any one time on peak basis can alone be the sum available to the person. This position has been held in the case of S. Kuppuswami Mudaliar vs. CIT (1964) 51 ITR 757 (Mad). In view of the above, proposal to assess any income on the basis of floppies is wrong. The income of rupees one crore admitted erroneously in the return may be deleted, as it has neither accrued nor received by the assessee." The aforesaid letter, in no uncertain terms, clearly supports the contention of the assessee that the original conditional/qualified offer made by the assessee in the return was no longer valid once the assessee filed the aforesaid letter during the course of the assessment proceedings. The fact that the assessee withdrew its original offer is also borne out from the assessment order wherein the AO has noted that the assessee, during the assessment proceedings, made a complete turn around by filing the above letter dt. 8th Feb., 1999. 7.8 The AO, it appears, did not consider the above to be relevant in view of th....
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.... Even in such a situation, Their Lordships held that the excess amount paid by the assessee by mistake or inadvertence or on account of ignorance cannot be retained and should be refunded to the assessee, since its retention may offend Art. 265 of the Constitution. Their Lordships observed that the assessee may bring the mistake in the return to the notice of the assessing authority, which, if satisfied, may grant him relief and refund the tax paid in excess as under: "We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on accoun....
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....eld by the Delhi High Court in the case of Bharat General Reinsurance, it was the onus of the AO to analyze the floppies and prove that (i) the entries therein belonged to the assessee; (ii) the entries reflected transactions of income nature. 7.15 In the letter dt. 8th Feb., 1999, the assessee has at many places denied that the floppies belong to him. In light of such denial and the assessee having resiled from the surrender/admission during the course of assessment proceedings, it was imperative for the AO to bring on record evidence to reach a finding that the floppies belong to the assessee and substantiate the addition made. No such attempt was made by the AO. From the facts and documents placed before us we find no material to hold that the floppies belong to the assessee. 7.16 We may also mention that before us, the learned counsel for the assessee also highlighted certain instances which clearly reveal that the data contained in the seized floppies could not be attributed to the assessee. One such important fact which was highlighted before us was the account titled "SKJ (interest)" appearing on the credit side of the trial balance prepared by the AO based on the cont....