TaxTMI 
TaxTMI 
2012 (10) TMI 292
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.... consideration of this Court: i) Whether the Appellate Tribunal was right in law in coming to the conclusion that the gifts received by the appellant from non Resident Indians (NRI) from their Non Resident External accounts (NRE accounts) during the Assessment years 1993-94, 1994-95 and 1995-96 are the 'undisclosed income' of the appellant within the meaning of clause (b) of Section 158B of the Act even though the said gifts were recorded in the regular books of account of the appellant and disclosed in the returns of income of the appellant filed prior to the date of the search and no incriminating material was found in the course of search? ii) Whether on the facts and in the circumstances of the case a person well informed in law could have come to the conclusion that the gifts received by the appellant were actually purchased by the appellant when there is no evidence to that effect on record and the appellant has been able to prove the identify of the donors by producing passports, the genuineness of the transactions by producing bank pass books of the donors and capacity of the donors as the gifts were received from Non Resident Ext....
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....vant to this appeal are as under: (a) The appellant is running health clinics in the name of M/s. Kayakalp International along with her family. The appellant's family consists of her husband one Dr. Sohanlal Gupta (Dental Surgeon), her son one Dr. Arunkumar Gupta (a Medical Doctor) and her daughterinlaw one Dr. Renu Gupta (also a Medical Doctor). (b) The entire family of the appellant was residing in Bhattinda, Punjab up to July 1991. However, due to terrorist activities in Punjab, the appellant and her family moved to Mumbai and commenced their health clinic viz. Kayakalp International at Borivali, Mumbai. This business expanded and soon it had established two more clinics in Mumbai as under: (i) Charni Road, MumbaiMay 1995 and (ii) Dadar, MumbaiNovember 1995 (c) On 26.03.1996, a search was conducted under Section 132 of the Act at the three clinics and residential premises of the appellant and her family. Consequent thereto, assessment for block period i.e. from 01.04.1985 to 26.03.1996 were commenced under Chapter XIVB of t....
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....irst question namely gifts received from Non Resident Indians through their NRE accounts being brought to tax as undisclosed income under Chapter XIVB of the said Act is concerned, Mr. Jhaveri made the following submissions: a) Gifts received by the appellant cannot be subjected to tax in a block assessment under Chapter XIVB of the Act, as the same would not fall within the meaning of undisclosed income as given under Section 158B(b) of the Act. This was for the reason that the gifts which were received by the appellant had been declared to the Income Tax Authorities in the form of capital gain account filed along with her return of income. In support, he invited our attention to the return of income filed by the appellant during the assessment years 1994-95 and 1995-96. So far as, assessment year 199394 is concerned, he invited our attention to an order dated 28.09.1995 of the Assessing Officer under Section 143(3) of the Act, wherein the gifts received from NRI's was subject matter of inquiry and duly considered while passing the assessment order. b) A block assessment can only be carried out on the basis of documents found during the ....
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....g the search indicated that the gifts were not genuine; and d) In matter such as these, one can never have conclusive evidence and one would have to take into account the surrounding circumstances particularly the fact that gifts aggregating to Rs.35.47 lacs were received by the appellant and her family. This fact and the surrounding circumstances would be tested on the probability of human behaviour to arrive at conclusion whether the gifts are genuine or not. In considering such probabilities, it cannot be said that the conclusion was reached on the basis of conjectures, surmise, inferences and/or suspicions. 8. The second issue is that the commission of Rs.2.42 lacs received from M/s.Chintamani Advertiser should not be separately subjected to tax in view of the fact that out of Rs.40.98 lacs cash seized the respondents had estimated an amount of Rs.32.88 lacs as undisclosed income leaving a sufficient balance to cover the commission receipts of Rs.2.42 lacs was not raised before the Assessing Officer or the Tribunal. In the circumstances, the question no.(vii) would not arise for consideration by us. Our court in the matter of CIT v. Tata Chemicals, repo....
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....ferences to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. (3) The burden of providing to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee. (4) .... 10. Mr. Jhaveri submits that the sinequanon for application of Chapter XIVB of the Act is that the income should be undisclosed income. Undisclosed Income has been defined under Section 158B(b) of the said Act as any income or property which has not been or would not have been disclosed for the purposes of this Act. Mr. Jhaveri in support of his submission that all the alleged gifts had been disclosed to the respondent, relies upon the return of income filed by the appellant for the assessment years 1993-94, 1994-95 and 1995-96 where along with the return of income, the appellant had filed her Capital Account which disclosed the receipt of....
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....d incorrectly declared large amounts as gifts, when in fact no such gifts were received from Non Resident Indians. Therefore, where the gifts are found to be not genuine, then the amounts represented by those gifts certainly become undisclosed income. Further, the burden of proof is on the assessee in terms of Section 158BB(3) of the Act to satisfy the Assessing Officer that the so called undisclosed income has already been disclosed in the return of income filed by the assessee. To our mind, mere mentioning of an amount as capital receipt in the Capital Account would not amount to a disclosure of income. This is so, as a capital receipt is not income and consequently not subject to tax. 13. Mr. Jhaveri in support of his contention that the slleged gifts were disclosed income to which Chapter XIVB of the Act would not apply firstly relied upon the decision of Delhi High Court in the matter of L.R.Gupta v. Union of India reported in 194 ITR page 32 where the court held that in terms of Section 132 (1)(c) of the Act "income which has not been disclosed" would mean income which the assessee has not returned in his income tax return. Mr. Jhaveri states that in the present facts the ....
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.... case. 15. Mr. Jhaveri then relied upon the unreported decision of the Punjab & Hariyana High Court in the matter of CIT v. V. P. Singh in Income Tax Appeal No. 194 of 2002 dated 16.04.2012. In the above case also, there was a finding of fact by the Tribunal that the gifts received by the assessee were genuine and mere non filing of a return of income would not result in making the gifts an undisclosed income, so as to attract Chapter XIVB of the Act. In the case at hand, there is a finding of fact by the Assessing Officer as well as the Tribunal that the gifts are not genuine and the appellant has not been able to show that the aforesaid conclusion of the Tribunal is arbitrary or perverse. 16. The unreported decision of this court in the matter of CIT v. Bombay Trading and Marketing Co. in Income Tax Appeal No.2234 of 2009 dated 04.01.2010, wherein this court dismissed an appeal by the revenue on the ground that the Commissioner of Income Tax (Appeals) and the Tribunal held that where sundry creditors had been disclosed in the regular return of income and accepted by the Department, it would not be open to the Department to allege that the amounts which were reflected as sun....
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....case, there is a concurrent finding of fact by the Assessing Officer and the Tribunal that the amounts shown as gifts were not genuine gifts, but were mere credits taken so as to evade payment of income tax. Further, as gifts are not income being a capital receipt and not subject to income tax its disclosure or non disclosure is of no consequence for the purpose of the Act. The Assessing Officer would normally accept an assessee's return of income along with the accounts showing an amount received as gifts in its capital account. However, it is only on account of search that documents were unearthed / found which showed that the gifts were not genuine, but only a method to convert the appellant's unaccounted money into regular income. Therefore, we hold that the non genuine gifts to the appellant was undisclosed income and covered by the definition provided in Section 158B(b) of the Act. 20. The second contention of the appellant is that a block assessment can only be carried out in respect of documents found during the search and it is not open to the Assessing Officer to rely upon the documents and/or evidence other than those found during the course of the search for the purp....
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....ed in 300 ITR page 152. The High court upheld the finding of the Tribunal that in case of block assessment only documents found during the course of search could be a basis for block amount. In the above case information was gathered during the course of survey operation at the premises of a third party and that information/material was not relatable to any material found during the course search operation. On the aforesaid finding of fact, the High Court refused to interfere. In the present case, the Tribunal has essentially relied upon the documents found during the course of the search such as identical confirmatory letters typed on the same typewriter not from relatives but from strangers (most were seamen) and the confessional statement as well as retraction made to FERA authorities which were relatable to the material found during the course of the search. Besides it seems that the amendment made to Section 158BB(1) of the Act in 2002 with retrospective effect from 1995 was not brought to the notice of the court. The section as amended permits assessment on the basis of any material with the Assessing officer relatable to the evidence found during the search. Therefore the....
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....h had already been disclosed in the regular course of assessment. Besides, it must be borneinmind that the aforesaid decision was rendered prior to 2002 when the words "relatable to such evidence" was introduced in Section 158BB(1) of the Act with retrospective effect from 1995. 26. The Gauhati High Court in CIT v. Bimal Auto Agency, 314 ITR page 151 refused to interfere with a finding of the Tribunal that no material was found during the course of the search for purpose of block assessment. The court also held that the valuation of the property by the Department Valuation officer post the search was not material found during the course of search. The Tribunal on facts in the above case had come to the conclusion that no material or evidence was found during the course of the search and therefore any material obtained thereafter cannot be related to the search even post the 2002 amendment of Section 158BB of the Act. In the above facts the court refused to interfere. The facts of the present case are completely different as in this case material/evidence of the gifts not being genuine were found during the course of search which led to the issuing of notice for block assessment.....
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....red to compute the undisclosed income. 30. Lastly, it was submitted on merits that the evidence found during the course of the search viz. copies of confirmatory letters from the donors of the gifts, copies of passport of the Non Resident Indian's donors of the gifts and their NRE account singly or together do not indicate reason enough to record the conclusion that the gifts were not genuine. Mr. Jhaveri submits that the entire case against the appellant is as on the basis of suspicion, conjectures and unwarranted inferences. 31. At this stage it may be relevant to reproduce two confirmatory letters from the donors to members of Gupta family as an illustration of identical language from donors situated in different countries, which are as follows: Letter 1) "From: Darshan Singh Raina, Starship Management Ltd, 801, Brickel Avenue, Suit - 1002, Miami, Florida 33131, U.S.A. Date : 21.09.1995 To, Mr. Sohanlal Gupta, 201A, Lancelot, S.V.Road, Borivali (W), Mumbai - 400 092. My Dear Sohanlalji, By the grace of God, I trust this letter will find you and your family in the best of health and spirits. Likewise I am also keeping fine. I am enclos....
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....substantiate the genuineness of gifts. Therefore, they were all typed on the same typewriter and are identically worded. 33. However, as pointed out by the Tribunal, this was a position taken by the appellant for the first time only in rejoinder before it to meet the objections of the department. One more fact which must be borneinmind is that most of the donors are seamen and none of them was produced before the Assessing Authority at the time of assessment to establish the genuineness of the gifts. In matters such as these all facts are within the knowledge of the appellant and therefore the department is not expected to prove its case with mathematical precision but a degree of probability of a prudent man taking into account the probable behavior of a reasonable man along with surrounding circumstances. In fact Parliament realizing the difficulty for the Revenue to prove its case to the hilt provided under Section 158BB(3) of the Act that the burden of proving to the satisfaction of the Assessing Officer that any income had already been disclosed is on the assessee. Further, sub section (2) of section 158BB in terms provided that section 68 of the Act relating to cash credit....