TaxTMI 
TaxTMI 
2016 (3) TMI 329
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.... present appeal relates to an addition of Rs. 74 lacs made by the AO as undisclosed income of the Assessee. Admittedly, the said payment of Rs. 74 lacs was made in cash for purchasing a property. The ITAT, in its order, has held that the AO had not made out any valid case for treating the investment as the undisclosed income of the Assessee for the block period. The ITAT further held that the addition on account of unexplained income, if any, had to be considered in the regular assessment on the basis of books of accounts and the return filed by the Assessee and there was no justification for considering the investment in the block assessment under Chapter XIV-B of the Act. This is contested by the Revenue. 3. By an order dated 19th February, 2007 the following substantial questions of law were framed for consideration:- "1. Whether the Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs. 74 lacs paid by the Assessee in cash for the purchase of property bearing No.C-104, Naraina Vihar, Delhi? 2. Whether the Income Tax Appellate Tribunal was correct in law in holding that the provisions of Section 158 BB of the Income Tax Act, 1961 we....
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....7.1998; Rs. 20 lacs in cash was given to Mr Arvind Seth on 28.01.1999; and Rs. 39 lacs in cash was paid to Mr Arvind Seth on 28.01.1999. Mr Harjeev Aggarwal also handed over 6 cheques amounting to Rs. 12 lacs to Mr Arvind Seth on 28.01.1999 and then received a signed receipt for the entire sum of Rs. 86 lacs which was signed by Mr Arvind Seth. Mr JK Gulati and Mr Kamal Seth (brother of Mr Arvind Seth) signed the receipt as witnesses. The examination of the Assessee, during the course of the search, was interrupted and remained incomplete as the Assessee felt unwell. 4.5 A few days later, on 05.02.1999, the Assessee filed his submission, inter alia, providing the explanation as to the sources of the cash payments made for purchase of the property in question. He submitted that the property was agreed to be purchased jointly in the names of Mr Harjeev Aggarwal, Mrs Anita Aggarwal (his wife) and Harjeev Aggarwal & Sons HUF (hereafter "the HUF") for a sum of Rs. 86 lacs from Mr Arvind Seth out of which Rs. 74 lacs was paid in cash and Rs. 12 lacs was yet to be paid. He further stated that out of Rs. 74 lacs, Rs. 14 lacs was paid out of cash in hand accumulated over a period of time ....
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....sis of his declared sources. The AO disbelieved the Assessee's claim that bulk of the cash payments were made from advances received from M/s Penguin Chits Pvt. Ltd., M/s Parmeshwar Chits Pvt. Ltd. and M/s Jai & Associates. The AO reasoned that the property in question was not yet registered in the name of the Assessee, his wife and the HUF and consequently it was not plausible that other entities would pay large amounts in cash as earnest money for purchase of the said property from the Assessee. Accordingly, the AO taxed the entire amount paid for purchase of the property in question - Rs. 86 lacs as undisclosed income of the Assessee. The AO also assessed Rs. 89,400/- being the amount of profit calculated on the transactions recorded in the diary seized during the search, as the Assessee's undisclosed income. In addition, the cash of Rs. 1,00,600/- found at the residence of the Assessee - which was claimed by the Assessee as belonging to his mother and was not seized during the search - was also included as the Assessee's undisclosed income. 6. The Assessee appealed against the block assessment order before the CIT(A), who before deciding the appeal, sought a rema....
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....ch would not have been disclosed for the purposes of the Act. He submitted that in the present case, the fact that large payments were made in cash clearly evidenced the Assessee's intention to not disclose the same. Further, on being confronted during the search, the Assessee had within three days thereafter, clearly, admitted that the Rs. 60 lacs of cash was unaccounted money and there would have been no occasion for the Assessee to have done so if the search was not conducted in his premises. 10.2 Mr Raghvendra next referred to the provisions of Section 158BB(1) of the Act and contended that in terms of that provision, undisclosed income of a block period is required to be computed on the basis of the evidence found as a result of search as well as other information as is available with the AO. He argued that in the present case, the conditions under Section 158BB(1) for taxing the payments in question were duly fulfilled; first of all, for the reason that the Assessee was examined under Section 132(4) of the Act and by virtue of the said provision, his statement could be used in evidence in any proceedings under the Act; and secondly, the search conducted on the premises....
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....material on the basis of which the cash payments made for purchase of property could be taxed as undisclosed income. 13. Chapter XIV B of the Act - as the title of the said chapter also indicates - contains a special procedure for assessment of search cases. It is well established that the special procedure as provided under the said chapter is triggered only in cases where undisclosed income is unearthed during a search initiated under Section 132 of the Act or where any books of accounts, other documents or assets are requisitioned under Section 132A of the Act. The explanation to Section 158BA(2) of the Act clarifies that the assessments made under Chapter XIV B of the Act are in addition to the regular assessment in respect of each previous year included in the block period and are only in respect of undisclosed income which are not included in the regular assessments. 14. At the outset, it is necessary to refer to Section 158B(b) of the Act, which defines " undisclosed income"; the said clause reads as under: "(b) undisclosed income" includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account....
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....ion of books of accounts or documents and such other materials or information as are available with the assessing officer. Therefore, the income assessable in Block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under Section 132 or requisitioned under Section 132A of the Act." 17. Thus, plainly, a block assessment under Chapter XIV-B of the Act is for bringing to tax undisclosed income which is computed on the basis of evidence found as a result of search and/or other information as is available with the AO which is relatable to such evidence. 18. In CIT v. Harkaran Dass Ved Pal: (2011) 336 ITR 8 (Del), this Court expressed the aforesaid view in the following words:- "This provision clearly stipulates that the undisclosed income of the block period has to be determined or computed "on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence". This Court in Ravi Kant Jain (supra), as indicated above, has already observed that the procedure of asse....
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....oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the sai....
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....her persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section 132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle." 23. It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computati....
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.... "18. It is not without reason that Parliament insisted that the recording of statement must be in relation to the seized and recovered material, which is in the form of documents, cash, gold, etc. It is, obviously to know the source thereof, on the spot. Beyond that, it is not a limited licence, to an authority, to script the financial obituary of an assessee." "19. At the cost of repetition, we observe that if the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act even if there is no other material. If, on the other hand, the statement is retracted, the Assessing Officer has to establish his own case. The statement that too, which is retracted from the assessee cannot constitute the basis for an order under section 158BC of the Act." 26. It is next to be examined whether the Assessee"s communication dated 5th February, 1999 and his statement recorded under Section 131 of the Act is the sole basis for making the block assessment or whether the AO had other incriminating material which would justify assessing Rs. 74 lacs as undisclosed income under Section 158BC of the Act. 27. A perus....
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....h did not record payment of cash (which was admittedly paid) at the time of search does indicate that the Revenue had found incriminating evidence. The statement made by the Assessee was also relatable to the records found during the search. 29. At this stage, it is also necessary to refer to sub-sections (1) and (3) of Section 158BA of the Act which read as under:- "(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995 a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this Chapter." XXXX XXXX XXXX XXXX "(3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income a....
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.... not through banking channels. Further the cash paid by the M/s Penguin Chits Limited, M/s Parmeshwar Chits Private Limited were also not drawn from banks but are stated to be from the cash deposited with them. There is no explanation whatsoever as to why such large payments were made in cash. In case of M/s Jai and Associates, the cash is stated to be paid from withdrawals from a bank. However, it is relevant to note that various amounts of cash were withdrawn by M/s Jai and Associates on various dates and there is no explanation why such cash was withdrawn in various tranches. The AO had also examined the returns furnished by the Assessee for various years which were barely above the threshold of the taxable limit. And, after taking into account the relevant material, the AO had concluded that the cash paid by the Assessee was undisclosed income. The ITAT has accepted that since the cash has been duly accounted for and disclosed in the returns filed by the Assessee subsequently, the same cannot be considered as undisclosed income. The ITAT has further proceeded on the basis that since there was no allegation of any nexus between the Assessee and the three entities, M/s Penguin Ch....
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....-B. The second category, viz., where income would not have been disclosed, contemplates the likelihood of disclosure ; it is a presumption of the intention of the assessee since in concluding that an assessee would or would not have disclosed income, one is ipso facto making a statement with respect to whether or not the assessee possessed the intention to do the same. To gauge this, however, reliance must be placed on the surrounding facts and circumstances of the case." 35. In the aforesaid view, the ITAT was required to address a question whether there was any likelihood that the cash payments would be disclosed. In our view, the ITAT failed to address itself to that question. In the present case, the surrounding facts and circumstances of the case are telling. First of all, the payments have been made in cash and there is no explanation as to why such large payments were required to be made in cash. Secondly, such cash payments were not recorded by the Assessee in its books or any record maintained by it at the time of search. Thirdly, the Assessee had admitted - by a letter sent immediately after the search as well as in a statement recorded under section 131 of the Act - t....