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2018 (5) TMI 439
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....ril, 1989 to 15th January, 2000. 3. ITA No.895/2008 arises from order of the Tribunal dated 12th October, 2007 in IT(SS)A No.400/Del/2005, whereby the Tribunal has deleted the penalty imposed by the assessing officer under Section 158 BFA (2) of the Act on the ground that the additions made in the Block Assessment Order were set aside by the Tribunal vide order dated 19th January, 2003. 4. By order dated 23rd May, 2005 ITA 169/2005 was admitted and the following substantial question of law was framed:- "Whether the Income Tax Appellate Tribunal was correct in law in deleting an addition of Rs. 51,00,000/- being the undisclosed income although the assessee himself admitted in his statement before the Income Tax Authorities that he had paid money to buy these gifts?" 5. By order dated 6th September, 2010 ITA 895/2008 was admitted and the following substantial question of law was framed for consideration, with the direction that the two ITAs would be heard together:- "Whether the ITAT was correct in law in deleting an addition of Rs. 51,10,000/- being the undisclosed income although the assessee himself admitted in his statement before the Income Tax Authorities that he....
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....r, U.P in his name and in the name of M/s. Gupta & Sons (HUF). These gifts were arranged by the respondent/assessee's Chartered Accountant, Mr. V.K Goel of M/s. V.K. Goel and Co., to whom the respondent/assessee had paid Rs. 60,00,000/- in cash. Mr. V.K Goel was also paid 3% commission for arranging the gift. Respondent/assessee confessed that he had never met Mr. Kamlapati Singhania, an industrialist based in Kanpur and Chairman of J.K. Synthetic and J.K. Cement. The respondent/assessee or his family members did not know Mr. Kamlapati Singhania personally. Respondent/assessee knew of no reason why Mr. Kamlapati Singhania had given him and his HUF gifts of Rs. 50,00,000/- and Rs. 10,00,000/-, respectively. This was the only gift which the respondent/assessee had received in the last 10 years. Respondent/assessee himself had not given gift during the last 10 years. Respondent/assessee in his subsequent statement recorded under Section 131 of the Act on 6th January,2000 had again accepted and admitted that the gifts were bogus and had offered the same to be taxed. For clarity, we have subsequently reproduced entirely or relevant portions of the statements on oath made by the resp....
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....ed 27th March, 2002 made an addition of Rs. 61,80,000/- treating gifts of Rs. 50,00,000/- and Rs. 10,00,000/- in favour of the respondent /assessee and M/s.Gupta and Sons (HUF), respectively, as bogus and undisclosed income. Rs. 1,80,000/- statedly paid as commission to arrange the gifts was added to treat Rs. 61,80,000/- as undisclosed income. 14. Block assessment order refers to incriminating documents found and seized during the course of search and observed that the respondent /assessee had unaccounted business turnover of Rs. 26,35,25,144/- from the six benami concerns, consisting of undisclosed sales recorded in bank accounts of Rs. 18,80,71,883/- and cash sales of Rs. 7,54,53,311/- recorded in seized Annexures A-40, 42 and 46. The assessing officer applying net profit rate of 5%, had estimated undisclosed income from the said turnover at Rs. 1,31,76,257/-. This computation it was observed would match the sum total of undisclosed income declared by the respondent/assessee of Rs. 82,82,110/-, arranged gift of Rs. 50,00,000/- in the name of the respondent /assessee, arranged gift of Rs. 10,00,000/- in favour of M/s. Gupta & Sons (HUF) and the commission of Rs. 1,81,000/- for....
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...."29. The first issue as indicated above concerns the scope and ambit of undisclosed income as contemplated under Chapter XIV -B of the Income-tax Act. Chapter XIV-B consisting of sections 158B to section 158BH was introduced by the Finance Act, 1995 with effect from 1.7.1995 to make procedure of assessment of search cases more effective. The chapter is titled "Special procedure for assessment of search cases." The scheme of block assessment enacted under this chapter laying down procedure for block assessment proceedings is intended by the legislature to operate simultaneously with the normal and regular scheme of assessment indicated under Chapter XIV of the Income-tax Act. Both the tax schemes are independent of each other and they are not mutually exclusive. Block assessment under Chapter XIV-B is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to regular assessment already made or to be made. Clause (b) of section 158B contains inclusive definition of undisclosed income and reads as under: "(b) "undisclosed income" includes any money, bullion, jewellery or other valuable....
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.... of the aforesaid legal position. The facts are undisputed that no evidence has been found during the course of search which may impeach the genuineness of the gifts received by the assessee and his HUF from Shri Rampathi Singhania. No documents or papers have been found during search proving that the gifts are non-genuine. The main stay of the Department's case is the statement of the assessee recorded on 25.11.99 and 6.1.2000 admitting the gifts to be nongenuine. First statement dated 25.11.99 is placed in the paper book filed by the Id. Sr. DR at pages 4 to 21. A part of the statement from pages 1 to 10 upto Question No. 19 and Answer thereto has apparently been recorded prior to the commencement of search and is a preliminary statement. Subsequent portion of the statement has apparently been recorded after the commencement of the search proceeding inasmuch as prior to recording Question No. 20, the authorized officer has recorded the title "statement taken during the course of search." In fact, the Assessing Officer has referred to the statement as preliminary statement at page 5 of the block assessment order. From these facts, it is amply evident that statement of the asses....
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....uly furnished during the course of assessment proceedings before the Assessing Officer and are placed in the assessee's first paper book at pages 112 to 125. Assessee and his family members are promoters, directors and shareholders in these companies and the amounts advanced by the assessee out of the gifts have been duly entered in their books of account and accepted in their tax assessments. Similarly with regard to source of the gift amount, we find that Shri Rampati Singhania is a leading industrialist belonging to Juggi Lal Kamalapath Singhania family of Kanpur. The donor has sold his property in Bombay for a sum of Rs. 2.75 crores and has received clearance from Income-tax Department in Form No. 34A and 37I for the sale of the property. Further Income-tax as well as Wealth-tax assessment of the donor for the assessment year 2000-2001, during which the gifts in question have been made have been completed after scrutiny in Central Circle, Kanpur by the Officer of the rank of the Joint Commissioner of Income-tax. All such documents were provided to the Assessing Officer during the block assessment proceeding and also form part of the paper book filed before us. Ld. Counsel has d....
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....e and is contrary to CBDT's instruction issued in march, 2003 pursuant to Kelkar Committee Report wherein the Committee has acknowledged the prevalence of the practice amongst the search parties to obtain forced confessions of undisclosed income from the assessees. The proposition is well established that admission made by an assessee during search operations constitute substantive evidence in view of sections 17 and 21 of the Evidence Act. However, such admission cannot be considered as conclusive evidence against the assessee. It has been held by the Apex Court in Pullangode Rubber Produce Co. Vs. State of Kerala 91 ITR 18, relied upon by the Id. counsel, "an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is correct." 35. Reference may further be made to the decision of Delhi High Court in S. Arjun Singh Vs. CWT 175 ITR 91, cited by the Id. Counsel where a similar proposition has been laid down. The Punjab & Haryana High Court in Kishan Lal's case 88 ITR 293 have taken the same view and observed, "it is an established principle of law that a party is entitled t....
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....onor. We feel that the assessee has discharged the onus to disprove the admission regarding genuineness of the gift transactions. 38. At this stage, we may refer to the contention of the Id. Sr.DR that there was no occasion or relationship between the donor and the donee for making the gifts in the instant case. In our considered view genuineness of the gift transaction has to be considered on the basis of attendant facts and circumstance of the case like identity of the donor, financial capacity and factum of the transaction. Even though relationship between the donor and the donees as well as the occasion for the gift may be relevant circumstances for adjudication of the issue of genuineness of the transaction yet no inference can be drawn merely on the basis of surmises and conjectures. Relationship or occasion for the gift are not in any case essential elements as engrained in the definition of gift under the Gift Tax Act. The view taken by us is amply reinforced by the decision of Chandigarh Bench of the Tribunal in the case of R.K. Syal Vs. ACIT 66 TTJ 656 cited by the Id. Counsel . In this decision, the Chandigarh Bench held as under: "The gifts made cannot be re....
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....spondent/assessee recorded on oath under Section 132(4) of the Act on 25th November, 1999, which is as under:- "Statement of Shri Mahender Singh Aggarwal s/o Sh. Mangat Ram Aggarwal aged 54 years R/0 2/34 Roop Nagar Delhi recorded on oath during the search and seizure operation u/s 132 of the Income-tax Act, 1961 on 25.11.99 at 2/34 Roop Nagar, Delhi. Sd/-25.11.99 Sd/- 25.11.99 (MS Aggarwal) Oath Taken Pawan K. Kumar IRS Dy. Director of Income tax (Inv) Unit-II, E/2, ARA Centre Jandewalan Extn., New Delhi 110055 Oath Administered Q.1 Please identify yourself Ans. I am Mahender Singh Aggarwal s/o Sh. Mangat Ram Aggarwal aged 54 years R/o 2/34 Roop Nagar, Delhi. Q.2 Please give the details of your bank lockers in your name or in the name of your family members? Ans. My wife Smt. Prabha Aggarwal has a locker in Indian Overseas Bank, Model Town, Delhi. I will be giving the key of locker. Second locker is in name of Sanjay Aggarwal and Monica Aggarwal in Punjab National Bank, Subzi Mandi, Delhi locker No. 933. Q.3 Please give details of your and yours family members' immovable properties. Ans. We have following immovable properties: 1. Hou....
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....8, Rajasthan, Udyog Nagar Director: (i) Sanjay Aggarwal (ii) Prabha Aggarwal 2. Haryana Acrylic Manufacturing Co. Pvt. Ltd. 20th Mile Jatheri Road, Vill. Bralmalik Sonepat, Haryana Director: (1) Sanjay Aggarwal (2) Prabha Aggarwal (3) Bhupender Nath R/o.C-186, Pushpanjali Enclave 3. Mono Acrylic Manufacturing Co. Pvt. Ltd 53, Gurudwara Road, Siraspur, Delhi Director: (1) Manish Aggarwal (2) Sanjay Aggarwal 4. M.S. Marble & Granite Co. Pvt. Ltd., 28, Rajasthan Udyog Nagar, Delhi Director: (1) S.S. Garg, Manager (2) Bhupender Nath 5. Acry Monomour Pvt. Ltd. Vill. Dhaturi, Sonepat, Haryana Director: (1) Sanjay Aggarwal (2) Manish Aggarwal Q13 What are your source of income? Ans. Investment in shares of the companies mentioned in answer to the Question no. 12 is the only source of my income. Q.14 Give full details of your family members, age, occupation residence and their source of income. Also state their income tax particulars, if any. Age Occupation Source of income Myself M.S. Aggarwal 2/34, Roop Nagar Age -54 yrs. Business Wife Prabha Aggarwal Ag....
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....e or in the name of my family member. Q. 16. How much cash jewellery and other valuables are lying in this premises ? Ans. About Rs. 4,00,000/- in cash and jewellery of about 70 tolas is lying in this premises. Q. 17 Do you know M/s. Loe Ram Munshi RamShroff ? Ans. Yes, I know . it is business concern of my brother Mr.Munshi Ram and My grandfather Sh. Leo Ram ( Late ) . The address of the firm is Baratooti Chowk ,Sadar Bazar , Delhi (ph: 7771630). My brother Sh. Munshi Ram resides at 2/80 Roop Nagar, Delhi Q. 18 Do you, your family members have any bank account outside India? Ans. No. There is no foreign bank account in my name or in name of my family members . No bank account outside India is being maintained by me or my family members Q. 19 Whether you have received or borrowed any cash / jewellery from anybody for business purpose or otherwise or kept any valuables , money or contains as amanat , which is not recorded in the regular books of account. Please give the details and evidence thereof? Ans. No cash belonging to any other person or cash received or borrowed from anybody is lying in this premise. However some jewellery belonging to Mrs. Shashi w/o An....
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....s the total turnover of M/s. Universal Enterprises per year during the last three years. Ans. This entity done business only during about last two years and the average turnover per year is about Rs. 1.5 crores per year. Q. 26 Please explain whether any sales tax or income tax has been paid on the sale and income earned through this entity. Ans. The sale of imported acrylic sheet attract 4% sales tax and since no books of regular accounts are maintained hence no income tax return for the income earned through this entity has been declared in my I. Tax return. Also no sales tax has been deposited. However, a memorandum record in shape of diary is maintained which has been found during the search. Q. 27 I am showing you small diaries marked as Annexure A-40 to A-46 wherein C1, C-2 , C3 to C-14 have been written alongwith the names to whom payments have been made . Please explain the nature of these codes. Ans. These codes relate to the various persons handling cash in various places of the company. For example C-3 relates to Mr. Umesh , the person handling cash affairs in Siraspur, C-10 is the person namely Mr. Mishra who is handles cash at 2/34 Roop Nagar ,Delhi C-....
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....nerated through unaccounted transactions of M/s. Delhi Acrylic Manufacturing Co. Pvt. Ltd. or Mono Acrylic, invested in Universal enterprises. Q. 36 During the course of search it was informed by the central room that you have purchased a property in village Dhaturi. Please state the total consideration paid and also where are the receipts of cash for the same. Ans. The land was purchased for Rs. 48.77 lacs. The land measured appox. 5 acres. Rs. 38.77 lacs was paid in cash and the documents was registered for a sale consideration of Rs. 10,00,000/- only. No receipt for cash was taken as we has taken the possession by the time the cash payment was made. Q. 37 Please explain the source of cash of Rs. 38.77 lacs paid for the land at Dhaturi. Ans. It was from the unaccounted trading transaction of our group concerns. Q. 38 During the course of search, papers, pertaining the purchase of one half portion of property No. 2/34 Roop Nagar from your uncle have been found. On a prima facie examination of the documents it appears that the property is undervalued . Please comment. Ans. Total consideration paid was Rs. 40 lacs out of which approx. 28 lacs was paid in cash which....
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....nt wherein necessary changes have been made in pencil whereby the consideration has been reduced to Rs. 65 lacs from Rs. 120 lacs , please comment. Ans. Yes, I have already disclosed to you the facts regarding the cash payment even before you could trace out the paper from my office. Q. 44 During the course of survey operation u/s. 133A of the I.T. Act 1961 at Sirsapur Godown of M/s. Mono. Acrylic Manufacturing Co. Pvt. Ltd. and M/s. Universal Enterprises, inventory of stock of Acrylic Sheets and poly carbonate sheet was prepared which is placed on record. Please furnish the detail regarding the purchase vouchers relating to those items and also throw some light on sale price etc. Ans. Average purchase price of Acrylic sheet is approx. Rs. 40/- per kg. and poly-carbonate is Rs. 80/- per Kg. The average sale price is in cash of. acrylic, around to Rs. 45 to 50/- per Kg. and in case of poly carbonate, it is Rs. 85 to 95/- per. Kg. Q. 45 Where are purchase and sale vouchers and books of accounts of your concerns? Ans. Books of accounts, purchase and sale vouchers are lying here only i.e. 2/34 Roop Nagar, Delhi. Books of account are maintained on computer also. Q.46 W....
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.... and business concerns in which you or your family members have business interest, or are partners, directors or sole proprietor. Ans. The complete list I will submit latest by 05.01.2000. Q.5 Please furnish the list of business concerns started or controlled by you or your family members, the particulars of which have not been disclosed to department so far. Ans. I will furnish the exhaustive list of all the entities lastest by 05.01.2000 positively. Q. 6 xxx Ans. xxx Q. 7 Please explain whether regular books of accounts are maintained for the concerns which have not been disclosed to department. Ans. Apart from some diaries wherein record for only for some period was maintained here and there and which have been seized during the course of search by the Department, there are bank accounts maintained by those concerns wherein complete details are available. Also some import files are with us wherein details of shipments by those concerns are available Q. 8 Where these records available in your residence/office on the day of search? Ans. No, these were maintained by Sh. Vipin Bansal who looks after those concerns and were available with him. Q. 9 xxx Ans.....
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.... Q.13 Whether this kind of memoranda records containing the detail of unaccounted transactions is being maintained in computers as well? Ans. As far as I remember these records are not kept on computers. Q.14 Pl. furnish the name and address of the banks wherein the entities which have not been disclosed to department, maintain their bank A/cs. Ans, Mainly the accounts are maintained in following two bank 1 lnddian Bank, DBG Road Pahar Ganj, New Delhi. 2. Indian Overseas Bank, Model Town, Delhi However, complete name of entities and bank A/cs will be furnished on 05.01.2000. A.15 Pl. explain the nature of business activities carried out by different business concerns owned and controlled by your and your family members. Ans. All my entities broadly are engaged in import of acrylic sheet, poly carbonate sheets, vinyls and sale thereof, manufacturing of acrylic sheets and there fabrication and exports of fabricated items. Q. 16 I am showing you all the pages of Annexure A76, Pl. explain the nature of transaction with M/s. British Scaffolding International Ltd. Ans. This annexure contains all the papers relating to transactions with M/s. BSIL regarding purc....
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.... The above statement has been read and I find it has been correctly recorded. Sd/- (Vinay Goel) 29.12.99 Sd/- 29.12.99 (MS Aggarwal) Sd/- 29.12.99 Pawan K.Kumar IRS Dy.Director of Income tax (Inv) Unit-II, E/2, ARA Centre Jandewalan Extn., New Delhi" Second statement of the respondent/assessee recorded on 29th December, 1999 was more than a month after the first statement at the time of the search on 25th November, 1999. By then, respondent/assessee had been discharged and had got over the initial shock and trepidation associated with the search and seizure operation. In this statement recorded in the presence of his Chartered Accountant on 29th December, 1999, the respondent/assessee did not retract and contradict his earlier admission on arranged and bogus gifts. The respondent/assessee had not complained or protested that his earlier admission was factually incorrect and was recorded by force and under coercion. The respondent/assessee took time to furnish the gift deeds and details of bank accounts. 23. The respondent/assessee's third statement on oath, under Section 131 of the Act, recorded on 6th January, 2000 on the aspect of gifts is as rel....
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....was not found during the course of search and also it has not been furnished till date despite a specific requisition for the same in the notice u/s.131 of the I.T. Act 1961 Ans. To the best of my knowledge it was executed but I do not remember it was registered or not & at present I am not able to trace the same. Q.34 Please furnish the details of mode & manner in which gift transactions was completed. Ans. It may be considered out of the income generated from my undisclosed firms. Q. 35 How the undisclosed funds were used in the gift transaction? Ans. This may have been done in cash/ kind. Q.36 Please furnish the copy of bank accounts with narration in respect of the entities not disclosed to the department. Ans. All the entities not disclosed to the department as per the list furnished were started in 1997 & 1998 and even in 1999. Some of them have been closed in 1998 and in 1999. At present M/s. Kumar Traders & M/s. Universal Enterprises are running, I shall be able to furnish the copies of bank a/cs within a week's time." It is noteworthy that even on 6th January, 2000, no attempt was made to retract the admission on bogus gifts or explain....
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....Income Tax (Appeals). The search had commenced the moment various officers, including the Deputy Director of Income Tax (Investigation Unit 2) had reached the residence of the respondent/assessee and had shown and executed the search warrant. 27. The Tribunal in the impugned order correctly records that the admissions were compelling. However, thereafter the Tribunal observed that the statements should be ignored and would not be accepted, as the assessee had been able to rebut the admissions as the gifts were made by Mr. Rama Pati Singhania a leading industrialist from a well known family of Kanpur who had sold a property worth Rs. 2,75,00,000/- in Bombay. The sale of property and gifts were declared by Mr. Rama Pati Singhania in his Income Tax returns, which were filed on record. Gift deeds dated 20th June, 1999 as well as 30th May, 1999 executed by the donor as well as the donee were produced before their assessing officer. Affidavits dated 13th May, 1999 and 20th June, 1999, sworn by Mr. Rama Pati Singhania much before the search, were also placed on record during the block assessment proceedings. The transactions were therefore not hidden and concealed but were duly disclos....
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....SCC 453, to observe that payment by way of cheques may not per se be of consequence in all cases and circumstances. When genuineness of the transaction was examined, the assessee must justify the cash credit by explaining the nature and reason of the transaction, otherwise Section 68 of the Act could be invoked even when there was evidence that the money was received by cheque or though bank transaction. This would not ipso facto determine and decide whether the transaction was genuine and truly a gift. It was observed:- "215. In Yash Pal Goel v. CIT (Appeals) [Yash Pal Goel v. CIT (Appeals), 2009 SCC OnLine P&H 664 : (2009) 310 ITR 75] , Kusum Lata Thakral v. CIT [Kusum Lata Thakral v. CIT, 2009 SCC OnLine P&H 7276 : (2010) 327 ITR 424], CIT v. Sandeep Goyal [CIT v. Sandeep Goyal, 2014 SCC OnLine P&H 24763 : (2014) 369 ITR 471 (P&H)] and ITO v. Mukesh Bhanubhai Shah [ITO v. Mukesh Bhanubhai Shah, 2009 SCC OnLine ITAT 1489 : (2009) 318 ITR (AT) 394 (Bom)] , the common issue was with regard to applicability of Section 68 of the Income Tax Act, 1961 vis-à-vis receipts which were claimed by the assessees to be by way of gifts and thus exempted from income tax. In all these c....
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....ates that judicial and official acts could be presumed were regularly performed. Thus, there would be a presumption as to the admission recorded, though the presumption is not absolute. Similarly, Section 57 of the Evidence Act states that Courts could take judicial notice of facts enumerated therein, albeit the list is not exhaustive. Judicial pronouncements hold that doctrine of judicial notice is wide and would include matters of common and general knowledge including facts that had acquired universal notoriety and have regular occurrence. It is in this context that observations made in the Kelkar Report regarding use of threats and compulsion to extract admissions, etc. and adverse observations in some judicial pronouncements would be relevant. Judicial notice of pernicious practice of procuring gifts could also be taken. However, it would be incorrect to apply presumption under Section 114 of the Evidence Act or the facts that could be judicially noticed, as affirmative or negative universal principles cast in stone. The factual background, i.e. facts and circumstances, matter and would be compelling. 32. Confessions are important for when voluntarily made there is a presum....
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.... (ii) There is no evidence or material or even an effective attempt to show that the respondent-assessee and Mr. Rama Pati Singhania were extremely close friends. Blood relationship is not claimed. (iii) The respondent-assessee before the Commissioner of Income Tax (Appeals) had stated that their forefathers may have helped forefathers of Mr. Rama Pati Singhania, a vague statement which in fact admits and accepts that the respondent-assessee did not personally know Mr. Rama Pati Singhania. (iv) The respondent-assessee's retraction was nearly two years after he had admitted having procured or arranged the gifts. (v) Statement dated 6th January, 2000 admitting that the gift was bogus and not genuine was made by the respondent-assessee in the presence of the Chartered Accountant. (vi) The respondent-assessee does not claim that the statement recorded on 6th January, 2000 was extracted and given under force, threat or coercion. 34. A gift is given out of natural love and affection to a person who is close to the donor or for the purposes of charity. Plea of charity has not been raised in this case. There is no evidence or even an indication as to how the respondent-asses....
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....ludes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false. (underlined portion was inserted by Finance Act, 2002 w.r.e.f. 1st July, 1995) xxx 158-BA. Assessment of undisclosed income as a result of search.-(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 132-A 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. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in Section 113, as income ....
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....n 139 or in response to a notice issued under subsection (1) of Section 142 or Section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired, but no return of income has been filed,- (A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; (ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause (c); (d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of S....
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....sessee. (4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under subsection (2) of Section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments. (underlined portion was inserted by Finance Act, 2002 w.r.e.f. 1st July, 1995. Prior to its substitution, clause (c) read as under, "(c) where the due date for filing a return of income has expired but no return of income has been filed, as nil") xxx 158-BC. Procedure for block assessment.-Where any search has been conducted under Section 132 or books of account, other documents or assets are requisitioned under Section 132-A, in the case of any person, then,- (a) the Assessing Officer shall- (i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days; (ii) in respect of search initiated....
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.... Act. Referring to the latter portion of Section 158B(b), it was observed as under:- "17. The genesis of the issue before us lies within the folds of this section. Sections 158-BD and 158-BC, along with the rest of Chapter XIV-B, find application only in the event of discovery of "undisclosed income" of an assessee. "Undisclosed income" is defined by Section 158-B as that income "which has not been or would not have been disclosed for the purposes of this Act". The legislature has chosen to define "undisclosed income" in terms of income not disclosed, without providing any definition of "disclosure" of income in the first place. We are of the view that the only way of disclosing income, on the part of an assessee, is through filing of a return, as stipulated in the Act, and therefore an "undisclosed income" signifies income not stated in the return filed. Keeping that in mind, it seems that the legislature has clearly carved out two scenarios for income to be deemed as undisclosed: (i) where the income has clearly not been disclosed, and (ii) where the income would not have been disclosed. If a situation is covered by any one of the two, income would be undisclosed in the ....
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....e in the second category, i.e. where the income would not have been disclosed, contemplates likelihood of non-disclosure. It refers to the intention of the assessee. Relevance of the aforesaid observations in the context of the present case is that the respondent/assessee had certainly received Rs. 50,00,000/- by way of cheques from Mr. Rama Pati Singhania, allegedly as a gift, with an intent to claim exemption. It is not the case of the respondent / assessee that he wanted to ever disclose Rs. 50,00,000/- as taxable income and indeed in the block assessment return he had not disclosed this amount as taxable income. It is not the case of the respondent/assessee that this amount was to be disclosed or was disclosed as taxable income in the regular return under Section 139 of the Act. 38. Interpreting the aforesaid provisions of Chapter XIV-B in Commissioner of Income Tax versus Shailendra Mahto, [2015] 372 ITR 257 (Del), it was held as under:- "8. Section 158B(b) is a definition provision for the purpose of the said Chapter, which defines the term "undisclosed income". It is an inclusive definition and is subject to the context otherwise requiring a different interpretation. U....
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.... that the Legislature has clearly carved out two scenarios for income to be deemed as undisclosed : (i) where the income has clearly not been disclosed, and (ii) where the income would not have been disclosed. If a situation is covered by any one of the two, income would be undisclosed in the eyes of the Act and, hence, subject to the machinery provisions of Chapter XIV-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." 9. The aforementioned paragraph, interprets section 158B(b) of the Act and lays core and primary emphasis/stress on the phrase, "has not been and would not have been disclosed". This part of the definition effectuates and underlines the object of the block assessment proceedings is to bring to tax what was not taxed or would not ....
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.... in the cases of search or when section 132A is invoked, i.e., normal/regular assessments under section 143(1) or section 143(3) of the Act; and Chapter XIV-B or block assessment. Further, income included in the block assessment would not be included in the normal assessment and similarly income included in the normal assessment would not be included in the block assessment. We shall be referring to several judgments relied upon by the counsel for the respondent-assessee which have decided the controversy whether income should be assessed in the normal assessment or block assessment by primarily relying upon the said Explanation. This indeed is the correct interpretation accepted by the courts. Thus, there can be regular and block assessments for the same period. The next question is what could be included or the scope and ambit of block assessment and regular assessment. The answer lies in conjoint and harmonious reading of the sections 158B(b) and 158BB of the Act. 11. Section 158BB of the Act is a procedural provision which deals with computation of undisclosed income but is also a substantive provision because it seeks to define what is to be included and can be made a subje....
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....s to a part of the year which had not ended or when the date of the filing of the return under section 139(1) had not expired. In such cases, income of the transactions recorded on or before the date of search or requisition of the books of account or other documents, etc., would not be included in the block period. The said sub-section has to be read along with section 158B(b) which defines, "undisclosed income". On harmonious construction, it follows that said entry in the books of account should not be false, otherwise they would be covered under the head "Expense, deduction or allowance which is found to be false". 13. "False" or "falsehood" is a strong word and much narrower than the word or term "incorrect" or "legally unsustainable". "False" or "falsehood" refers to element of mens rea or bad mental intention and would not relate to claims which might be wrong because of legal interpretation or has to be disallowed because of technical defect and similar reasons. However, as noticed below, this question does not arise for consideration in the present case. 14. Clause (c) of section 158BB(1) of the Act as enacted was substituted by the Finance Act, 2002, with retrospect....
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.... assessment can be filed. Clause (b) of section 158BC states that the Assessing Officer shall proceed to determine the undisclosed income for the block assessment period and the provisions of sections 142, 143(2), 143(3), 144 and 145 shall apply and as per the mandate of clause (c), block assessment order has to be passed and tax payable has to be determined. As per clause (d), the assets seized under section 132 or requisitioned under section 132A have to be accordingly dealt with in accordance with section 132B." 39. Shailendra Mahto (supra) had examined several decisions of different High Courts on the issue and had extensively relied on the decision of the Supreme Court in A.R. Enterprises, (supra) interpreting the term "undisclosed income" and in particular the expression "had not been or would not have been disclosed for the purposes of the Act". 40. At this stage, it would be relevant to refer to the judgments relied upon by the counsel for the respondent/assessee. Decision of the Supreme Court in Assistant Commissioner of Income Tax and Another versus Hotel Blue Moon, [2010] 321 ITR 362 (SC) had answered the issue and question whether issue of notice under Section 143....
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....ll Ltd. (supra), the Division Bench referred to definition of the expression "undisclosed income" vide clause (b) to Section 158B and the amendment made by Finance Act 2002 with retrospective effect from 1st July, 1995 to Section 158BB(1) of the Act relating to computation of undisclosed income for the block period and it was observed as under:- "10. On a reading of both these provisions of law, which are inserted in the Act by the same amending statute, that is, the Finance Act, 2002, it appears to us that undisclosed income should be that which is discovered as a result, inter alia, of a document or transaction which has not been or would not have been disclosed for the purpose of the Act. This pre-condition does not arise in so far as the present case is concerned because admittedly the document recovered during the search represented a disclosed transaction of sale of property that had taken place for which M/s. Televista Electronics Limited had been paid a commission. In so far as the falsity of the expense or deduction or allowance is concerned, that must be necessarily be relatable to the document or transaction. This is clear from section 158BB(1) of the Act which specif....
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....y the Assessing Officer in the regular assessment. Section 158BB(1) pertinently uses the expression "relatable to evidence found as a result of search or requisition of books of account or other documents or such other material or information as available with the Assessing Officer". Expression "relatable to" is wide in ambit and scope. 41. Similarly, decision in DPA Finvest Services Ltd. (supra) is distinguishable for in the said case, the Assessing Officer had made addition of more than Rs. 33.75 lacs as unexplained credit under Section 68 of the Act on the basis that the said assessee had received Rs. 61,933/- by way of accommodation entry from a company subjected to search and seizure operations. After referring to Section 158BB(1) it was observed that the Revenue had not been able to bring on record any information or material that the additions made were relatable to the solitary accommodation entry which was unearthed during the search. 42. Bluechip Construction Company (P) Ltd. (supra) follows the reasoning given in Ansal Buildwell Ltd. (supra) while deciding the question of addition of Rs. 26,10,500/- in respect of credit appearing in the bank account of the assessee to....
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....text of Section 132 of the Act. With respect we may note that for the purpose of Chapter XIV-B, the expression "undisclosed income" has been specifically defined. Section 132 relates to pre-search requirements and Chapter XIV-B incorporated a special procedure for post search assessment in respect of "undisclosed income". Definition ascribed to "undisclosed income" would guide and govern the applicability of Chapter XIV-B or the block assessment proceedings. Difference in clause (c) of Section 132 and expression undisclosed income defined in Section 158B(b) of the Act was highlighted in Shailendra Mehto (supra) after referring to observations made in N.R. Paper and Board Limited and Others versus Deputy Commissioner of Income Tax, [1998] 234 ITR 733(Guj.). In this context, we may now refer to the decision of the Rajasthan High Court in Commissioner of Income Tax versus Elegant Homes Private Limited, [2003] 259 ITR 232 (Raj.) which with respect reflects and resonates a compelling opposite view. The tribunal in the said case had deleted additions of Rs. 41,000/- as cash credits not proved as genuine. Deposits of Rs. 41,000/- were recorded in the regular cash books maintained by the a....
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....s recorded at the time of search. Therefore, it cannot be said that the statement was 'seized' during the search and thus, would not qualify the expression "document" having been seized during the search. In such a scenario, proper course of action was reassessment u/s 147 read with section 148 of the Act." In Harjeev Aggarwal (supra), it was observed as under:- "20. In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merel....
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.... 47. Evidence can be both - documentary or oral. Section 3 of the Evidence Act, 1872 states that evidence means and includes all statements which the court permits or requires to be made before it by witnesses, in relation to matters of the fact under enquiry, and such statements are oral evidence. Documents, including electronic records, produced for the inspection of the courts, are called documentary evidence. Harjeev Aggarwal (supra), thus confounds the confusion and does not help us resolve conundrum and enigma of "undisclosed income". In the first portion of the judgment it was held that the evidence found as a result of search would not take within its sweep statements recorded during the search and seizure operations except when it was relatable to material or documents found during the search. In other words, oral testimonies recorded under Section 132(4) on a standalone basis without reference to other material discovered during the course of search and seizure operations cannot be treated as evidence and form the basis of addition as undisclosed income in the block assessment. Mere admission during the search on oath cannot result in addition as undisclosed income. Th....
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....s in the statement of accounts, including bank accounts or may well refer to acceptance or admission on utilization of unaccounted for money/income for which physical/material and documents have been destroyed and were not available/found, or were already in knowledge of the Revenue and, therefore, were not "found" for the first time. "Evidence found" could well be oral evidence that would mandate addition as undisclosed income. The word "found" is past and past participle of "find", which means to discover by chance or deliberately. It is normally associated with discovery of information or a fact and in the context of investigation, detection of someone in a wrong, lie or a crime. The word "found", therefore, in natural and normal context would in the context of "evidence found" include oral evidence or a statement made on oath and is not confined and restricted to tangible material in form of documents or papers or an article. It is, in this context, the Assessing Officer could refer to the facts or evidence as found as a result of search and further inquiries thereupon. 50. In the present case, Revenue would submit that papers and documents were found, which indicated that t....