TaxTMI 
TaxTMI 
2021 (2) TMI 784
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.... April, 1995 to 18th March, 2002. ITA No.3845/Del/2009 filed by the assessee is directed against the order dated 22nd July, 2009 of the CIT(A)-II, New Delhi, relating to the assessment year 2002-03. For the sake of convenience, all these appeals were heard together and are being disposed of by this common order. 2. First we take up IT(SS)A No.40/Del2009 as the lead case. Facts of the case, in brief, are that the assessee is a company and a part of Aerens group of cases. A search and seizure operation was carried out at the business premises of the assessee company on 18th March, 2002. During the course of assessment proceedings, the AO noted that during the course of search and seizure operation, it was seen that the group had adopted declaration of agricultural income as a method to introduce unaccounted income into business. The assessee group is having a number of companies, but, none of the companies are showing any profit. In compliance to notice u/s 158BC of the IT Act, 1961, the assessee filed its return of income declaring nil income. The AO noted that this group is a real-estate agent and also builders and at present a number of projects are in operation at Vaishali,....
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....ations, they stated that it was just sufficient to meet its requirements. The AO referred to the statements recorded during the course of search and seizure operation of Mr. Mohan Singh, Chief Supervisor wherein he had categorically stated that the land is barren one and banjar and at some of the places wheat, mustard, etc., are produced. Similarly, Shri Suresh Bhardwaj in his statement recorded stated that there was no horticultural operations, but some crop was grown there. Similar, statement was given by Shri Shalaluddin. The AO also referred to the statement of Ram Singh, S/o Shri Rattan Lal, Sarpanch of Vill. Kanwarsika, Sohna who, in his statement has stated that there was crops of wheat, etc. Similarly, Mr. Jang Bahadur Singh, GM of Anchor Resort, wherein the assessee has claimed to have done the agricultural operations, had stated that there were no agricultural operations and had agreed with the videography shown to him. He also referred to the statement of Shri Maqsood Khan and Shri Kamal Kumar, who had also stated that there was no agricultural activity done. 5. The AO further noted that the bunch of loose papers found and seized from the residence of Shri S.K. Gupta,....
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....of the CIT-II(Central) passed u/s 263 and, therefore, did not examine the appeal on merits. The order of the C1T(A) was passed on 27.10.2004. The assessee in the meantime carried the order of the CIT passed u/s 263 in appeal before the Tribunal and the Tribunal vide order dated 3.3.2005 set aside the order passed by the CIT u/s 263 with the result that the original assessment made on 31.3.2004 got revived. The assessee thereafter moved an application u/s 154 before the CIT(A) requesting him to decide the appeal on merits. This request was rejected by the CIT(A) by order dated 10.1,2006. However, the assessee filed a belated appeal before the Tribunal with a request for condonation and against the action of the C1T(A) in rejecting its application made u/s 154 of the I.T. Act, The Tribunal vide order dated 2.4.2008 condoned the delay of the assessee and directed the CIT(A) to dispose of the appeal on merits. Accordingly the case of the assessee was been restored to the file of the CIT(A). 9. During the course of proceedings before the CIT(A), it was submitted that the agricultural activities were closed on 31.3.2001 and the name of the company was changed from M/s Rohan Agro....
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....ulk buyers and the payments have been received by account payee cheques. The customer wise details were submitted before the AO. iii)The assessee has been carrying out these agricultural activities for the last number of years. These have been duly declared to Income Tax department from time to time. iv) Joint venture Agreement with the landowners. v) Details of irrigation and other facilities. vi) Details of government approval for Green House. vii) The test report of soil and water carried out by the assessee recently and also at various time during block period. The report states that the land had normal soil and water and was suitable for agricultural purpose. viii) A Green hlouse was constructed during the financial year 1995-96, 97- 98 and 98-99. The full details of the amount spent were produced before the AO. The party who constructed the green house also got the subsidy from District Horticulture Officer. Copies of the bill of construction of the green house and confirmation from Distt. Horticulture Officer, Gurgaon, were submitted. ix) The details of the agricultural appliances purchased by the Assessee Company, It was....
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....culture income, it is taxable income. It was submitted that this is a clear case of change of opinion by the AO since earlier the Department had held that the income is exempt, therefore, the AO, in the block assessment order could not have treated the same as undisclosed income. It was submitted that as to whether the income is exempt u/s 10 is a matter of assessment u/s 143(3) and is not a subject matter of undisclosed income. It was accordingly argued that no such addition can be made under Chapter XIVB of the IT Act. Various decisions were also brought to the notice of the CIT(A) to the proposition that once an income has already been examined by the AO in detail while completing the assessment u/s 143(3) or 144 or 147, it had to be presumed that the AO had gone into all aspects of such income and the same could not be reopened during assessment being made for the block assessment period. It was accordingly argued that the block assessment proceedings undertaken by the AO should be cancelled both on legal grounds as well as on merits. 13. However, the ld.CIT(A) was not satisfied with the arguments advanced by the assessee and upheld the action of the AO. So far as the legal ....
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....s further erred in holding that joint venture agreement entered by the appellant are nothing but a device to channelise the income in the form of agriculture income, more so when such addition could not be made under the law in proceeding u/s 158BC. 3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in holding that assessee company did not perform any basic operation so as to qualify for exemption u/s 10 of IT Act. 4. That in any case and in any view of the matter Ld. CIT(A) has erred in law and on facts in not quashing the impugned assessment order passed by Ld. AO and in no deleting various additions/disallowances made by Ld. AO as the assessment order is not sustainable on various legal and factual grounds and more so by recording incorrect facts and finding and that too without giving adequate opportunity of being heard. 5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 15. The ld. counsel for the assessee strongly challenged the order of the CIT(A) confirmi....
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....in the case of Ravi Kant Jain (supra), on the ground that the income which is subject of regular assessment cannot be considered as undisclosed income of the block period. However, the contention of the assessee was rejected by the AO on the ground that after amendment to section 158B(b), the definition of undisclosed income was widened with retrospective effect to examine deduction/allowance/expenses if they are found to be false. He submitted that although similar argument was advanced before the CIT(A), he has also rejected the contention of the assessee on the ground that such claim of the assessee cannot be accepted in view of the evidence gathered during and after the search which revealed that the land does not suit for any agricultural activity. He submitted that the rejection of the contention is wrong since the agricultural activities were stopped a year ago from the date of search and ample evidence was submitted by the assessee to prove that in fact agricultural activities were carried out by the assessee during the block period and such fact was supported from the regular assessment orders by which agricultural income was accepted after making enquiries. The ld. Counse....
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.... transactions. The Hon'ble High Court held that those gift cheques were disclosed in the return submitted u/s 139. Therefore, the amount cannot be assessed in block proceedings u/s 158BC and the said amount could be added only in the proceedings u/s 147. Referring to the decision of the Hon'ble Karnataka High Court in the case of CIT vs. N Leela Kumar, 224 Taxman 106, he submitted that the Hon'ble High Court, after making reference to the provisions of section 158B(b) and also the provisions of section 139(1), held that even if the income was disclosed in the return filed u/s 139(4), the same cannot be considered to be undisclosed. Referring to the decision of the Delhi Bench of the Tribunal in the case of Promain Ltd. vs. DCIT, 170 ITD 188, he submitted that the coordinate Bench of the Tribunal has considered the impact of retrospective amendment made in section 158B(b) of the Act and held that even after amendment before coming to analyse what is undisclosed income, it is necessary to be seen that such income has not been or would not have been disclosed for the purpose of this Act. In a case where any such article or thing or income has already been disclosed to the Department p....
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....e garb of agricultural income. Accordingly 60% of receipts as lease rent received from M/s Aerens Infrastructure and Technology Ltd were taxed in hands of the assessee. Referring to the assessment order, she submitted that the AO has categorically held that there was no genuine lease agreement and rent received by it was not rent received from lease of agricultural land for agricultural operations. Referring to para 5 of the order of the CIT(A) she drew the attention of the Bench to the same and submitted that the ld.CIT(A) has discussed in detail as to how above income of the assessee constituted undisclosed income. The ld. CIT-DR, referred to the following decisions and submitted that where assessee failed to explain the source of agricultural income claimed to have been earned by it, no exemption could be allowed in respect of such income:- 1. CIT Vs Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) 2. Bhairavnath Agrofin (P.) Ltd. Vs CIT (354 ITR 276)(Raj.) 3. H.H. Maharaja Vibhuti Narain Singh Vs State of Uttar Pradesh(65 ITR 364) (SC) 4. CIT Vs Ramakrishna Deo (35 ITR 312)(SC) 22. Referring to the following decisions, the ld. DR submi....
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....cultural income has been accepted in the orders passed u/s 143(3). It is his submission that since the income has already been disclosed in the regular return, the same cannot be assessed as undisclosed income during the block period. According to the ld. Counsel for the assessee, addition, if any, can be made by the AO only in the regular return. 25. We find some force in the above argument of the ld. Counsel for the assessee. 26. A perusal of para 15 of the assessment order shows that the assessee had declared the following agricultural income:- Astt. Year Sales Security paid Lease money paid 1996-97 68,12,768 26,500 40,87,663/- 1997-98 1,58,70,648/- 57,28,250/- 95,22,790/- 1998-99 2,64,09,130/- 1,26,87,815/- 158,40,000/- 1999-00 4,47,59,735/- 1,52,57,762/- 2,68,55,835/- 2000-01 6,48,44,767/- 1,92,75,130/- 2,89,06,860/- 2001-02 8,68,96,983/- 1,83,05,130/- 5,21,38,190/- 2002-03 7,12,80,587/- 27. A perusal of para 31 of the assessment order shows that the AO had determined the undisclosed income of the assessee for the block period at Rs. 24,55,95,031/-, the detail....
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.... number of ornamental plants fetching higher value has been increased and modes of planting have been undertaken is more scientific and latest ways. Details of additional in the assets have also been filed along with other details. ---- examination of all the above facts and details furnished by the assessee the agricultural income of Rs. 53,74,222/- is accepted. Assessed. Issue necessary forms." 28.2 Similarly, for A.Y. 1998-99, the AO in the order passed u/s 143(3) has observed as under:- "Return if income was filed on 30.11.1998 declaring of NIL. The same was processed u/s 143(1) on the returned income. Notice u/s 143(2) dated 9.8.99 was issued and duly served upon the assessee through regd post. In compliance of the various statutory notice--- Gupta, charted accountant, attended the proceedings from time to time and the case was discussed with her. Books of account produced were test-checked. Issue demand notice and challan." 28.3 Even in the assessment order for 2000-01, which was passed on 18th March, 2003, i.e., after the date of search on 18th March, 2002, the AO has observed as under:- "Return of income was filed on 30.11.2000 decl....
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....ary consideration is whether the AO had the jurisdiction to make the additions to the assessment under section 158BC of the Act. To analyze this, it is necessary to address the grounds of each such addition made, and assess if the AO had jurisdiction in conducting the block assessment within the meaning of section 158BC, or if this was indeed not within the purview of the AO's jurisdiction. Section 158BC reads as follows: "Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, 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 or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997 serve a notice to such person requiring him to furnish within such time not being less than fifteen ....
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....is cannot be construed to mean that whatever has been left out in a regular assessment can be reassessed or re-examined with reference to those provisions which are relatable to an assessment u/s 143(3). This is evident from A.R. Enterprises (supra),where the court held as follows: "... Sections 158BD and 158BC, 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 158B 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 inco....
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.... "Undisclosed income referred to in Chapter XIVB is not relateable to the previous year. On the contrary, it is for the block period which may be 6 years or 10 years, as the case may be. Consequently, as already mentioned, while analyzing the scheme of Chapter XIVB, such Chapter is a complete code in respect of assessments of 'undisclosed income'. Not only it defines what is undisclosed income, it also lays down the block period for which undisclosed income can be taxed. Further, it also lays down the procedure for taxing that income. It is very pertinent to note at this stage that for this purpose, specific provision in the form of Section 158BA (2) is inserted making it a charging section. Thus, a diagnostic of Chapter XIVB of the Act leads to irresistible conclusion that it contains all the provisions starting from charging section till the completion of assessment, by prescribing special procedure in relation thereto, making it a complete Code by itself. Looking it from this angle, the character and nature of 'undisclosed income' referred to in Chapter XIVB becomes quite distinct from 'total income' referred to in Section 5. It is of some signifi....
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....ection 255 (4), which provides thus: "Section 255(1)************* ****** (4) if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it." In the present case, when the third member noticed what he considered to be a lack of clarity about the block proceeding and the Revenue's ability to add income in the absence of any seized material, he was duty bound to refer that point for decision, which he did. The subsequent clarification by the Bench, and later final decision, therefore, cannot be faulted. 29. This court now proposes to discuss the specific issues, which were referred or restored to the AO, having regard t....
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....isclosed income for the block period. 31. The amounts were already disclosed in the regular assessment of the assessee in 1989-90, and similarly even in the case Sangeeta Misra, and are thus, outside the purview of the definition of "undisclosed income". Thus, the AO has no jurisdiction to make the aforementioned additions under section 158BC of the Act. Thus, the addition of Rs. 1,72,000/- by the AO has been made devoid of jurisdiction, since the same was already disclosed, and had not been unearthed during the search undertaken for the block assessment. 32. The next item of the addition of Rs. 50,00,000/- made by the AO on account of foreign travelling expenses. The court notices at the outset, that this was on the basis of the AO's ad-hoc estimate of daily expenditure incurred by Shri Pinaki Misra vis-à-vis the foreign visits @ Rs. 2,500/- per day, and addition of Rs. 25,00,000/- on account of foreign travel expenses of Ms. Sangeeta Misra. The material on the record- filed during the regular assessment was that by his letter dated 16.12.1997 Shri Misra submitted that he was an advisor of Shri Chandraswamy since 1984, and had undertaken 22 foreign tri....
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....g them from the passport office. Thus, the inference of escaped income is based upon materials gathered from extraneous sources and not from search. Section 158BB (subsequent to amendment by the Finance Act, 2002 w.e.f. 01.07.1995) states how the undisclosed income of the block period needs to be computed on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence on the basis of evidence. In Assistant Commissioner of Income Tax and Anr. v. Hotel Blue Moon (2010) 229 CTR (SC) 219 held that block assessments are not intended to substitute regular assessment and its scope and ambit is limited in that sense to materials unearthed during search. Similarly, it was highlighted in Commissioner of Income Tax v. R.M.L. Mehrotra (2010) 230 CTR (All) 288, an assessment based on search alone that does not attribute material evidence found therein or other information available with the AO relating to such materials cannot constitute block assessment. In the light of the above analysis, it is held that the additions made on account of the foreign tri....
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....assessment order, is that the addition was made on a presumption that the rent charged (at the rate of Rs. 2500/- per month) was less than the fixed rent. However, this exercise of the AO ought to have been carried out within the meaning of regular assessment under section 143(3). When all material relating to the so called "suppressed rent" was available with the AO, in the first instance when the assessment for the relevant year was completed and no addition was made, the exercise by the AO, in deducing that the assessee must have earned some income (based on the expenditure estimated for his foreign travel and the estimate of his professional income) which was the suppressed rent, and determined, is twice removed from reality. The error in this kind of assessment was compounded, given that no material relating to such "suppressed rent" was discerned during the search or from the seized materials. Thus, this assessment falls outside the jurisdiction of the AO, since the block assessment conducted is not based on relatable evidence as required under section 158BB(1), but on presumptions made by the AO, as was highlighted in R.M.L. Mehrotra (supra), how an assessment based....
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.... thereby, cannot include material already revealed. This was similarly highlighted in CIT v. Jupiter Builders P. Ltd. ((2006) 287 ITR 287 (Del)) and Commissioner of Income Tax v. Shri Vishal Aggarwal (2006 (283) ITR326(Del)) that where an income and assets are disclosed in the books of account and no incriminating material is found during search and seizure, addition in the block assessment is not valid. Therefore, the gifts received by the assessees from Jhanwar Lal Kothari, as well as the gift from Shri R. K. Jatia fell outside the purview of block assessment, and the AO has no jurisdiction to bring to tax the said sums. 37. In the light of the foregoing discussion and conclusions, the question of law framed in these appeals has to be and is answered in favour of the assessees and against the Revenue. The appeals fail and are, therefore, dismissed. 30. We find, the Hon'ble Calcutta High Court in the case of Caltradeco Steel Sales (P) Ltd. vs. DCIT, reported in 243 ITR 643, while holding that the proceedings u/s 143(3) will go simultaneously along with the proceedings in pursuance of the notice u/s 158BC has observed as under:- "8. The heading of Chapter XIV-B....
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....rtment before the date of search then the income could not be considered as undisclosed in view of section 158BB. The relevant observations of the Hon'ble High Court read as under:- "7.1 The Tribunal has observed that in the present case, the intention of the assessee is clearly reflected in so much as she had already filed the return before the date of search. In view of the aforesaid provisions of the Act, it is borne out that the respondents filed their returns, though beyond the due date specified u/s 139(1) of the Act, but before the date of search on 08.09.1995. The returns of the income of the assessee were already on the records of the department before the date of search and therefore it cannot be said that the assessee tried not to disclose their incomes from the partnership firm. 8. The reliance on the decision in the case of A.R. Enterprises (supra) placed by the learned advocate for the appellant shall not be applicable to the facts of the present case as in the said case before the Apex Court, the returns were filed after the date of search whereas in the present case the returns for two years were already filed before the date of search. It....
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....d assessment. At the stage of issue of notice, the only question is, whether there was relevant material on which a reasonable person could form the requisite belief that income had escaped assessment. We are of the opinion that in the given circumstances, the Assessing Officer was justified in forming an opinion, that income had escaped assessment and was, therefore, justified in issuing notice under Section 148 of the Act." 33. We find, the Hon'ble Karnataka High Court in the case of CIT vs. N Leela Kumar, 224 Taxman 106, after making reference to the provision of section 158BB and also the provisions of section 139(1), held that even if the income was disclosed in the return filed u/s 139(4) the same cannot be considered to be undisclosed. The relevant observations of the Hon'ble High Court read as under:- "12. If the income is reflected in the books of account prior to the first search and no return is filed within the prescribed due date under Section 139(1) and if a second search takes place before the due date for filing the return as prescribed under Section 139(4) of the Act, merely because the return was not filed under Section 139(1) disclosing the said incom....
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....sult of evidence found during the course of search and not as a result of other documents or material which came to the possession of the AO subsequent to the conclusion of search operation unless and until such "material or document is relatable to such evidence recovered during the course of the search. The amended definition of sec. 158BB as mentioned above clearly suggests that some evidence is to be found as a result of search operation and it is only thereafter that the remaining part of the provisions come into play and that too the remaining evidence must be relatable to the evidence recovered during the course of the search. The other amendment in sec. 158B(b) which is reproduced above has enlarged the meaning of the term "undisclosed income" by including therein "any expense, deduction or allowance claimed under this Act which is found to be false." What has to be seen is that the valuable articles, documents or transactions which represent wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act. Therefore, before coming to analyze what is undisclosed income, it is necessary to be seen that such....
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.... the agricultural income of M/s. Aerens Infrastructure and Technology Ltd. is not genuine. 3. That the Ld. CIT (Appeal) has erred in treating the agricultural income of Rs. 1.55.67.215 declared by the appellant as undisclosed income although it is income which is totally exempt under section 10(1) and could not have been assessed as income from undisclosed sources. 4. That the Ld. CIT (Appeal) has failed to appreciate that when the entire sale proceeds from agriculture have been treated as undisclosed income in the hands of M/s. Aerens Infrastructure and Technology Ltd., the share of the appellant received out of such income cannot again be included in the assessment of the appellant as it would amount to taxing the same income in the hands of two assessees. 5. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. 6. That the Appellant craves leave to add/alter any/all Grounds of appeal before or at the time of hearing of the Appeal." 39. After hearing both the sides, we find, the grounds raised by the assessee are identical to the grounds of appeal in IT(S....