Central I, Chennai v. R.m.patel (Huf

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.4.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANAND THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income TaxCentral I, Chennai. Central I, Chennai...AppellantVs.R.M.Patel (HUF)..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'B' Bench dated18.8.2006 in IT(SS)A No.55/Mds/2003 for the block period 1988-89 to 1997-98 and 1.4.1998 to 5.11.1998 and Lr.No.ITA.No.68/2002-2003 dated24.12.2002 of the Commissioner of Income Tax (Appeals) Central - I,Chennai - 34, and the Assessment order 27.06.2002 in PA.No./GI.No.AAAHR3390C from the Deputy Commissioner of Income Tax Central Circle I(1)Chennai - 34. For Appellant : Mr.J.Narayanasamy, Jr.S.C.J U D G M E N T(Delivered by P.D. DINAKARAN, J.) The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal in IT(SS)A No.55/Mds/2003 dated 18.8.2006. 2.1. The relevant assessment is block period of 1988-89 to 1997-98and 1.4.1998 to 5.11.1998. The assessee is a Hindu Undivided Family (inshort 'HUF'). A search under Section 132 of the Income Tax Act wascarried out at the residential and business premises of the Karta of theHUF, viz. Ratanshi Patel and his brother Khimji M Patel between 5.11.1998and 30.11.1998. During the search, it was found that HUF assessee had atimber trading business by name Ram Plylam during the assessment years1996-97, 1997-98 and 1998-99. The materials seized indicated that theassessee had also undisclosed income from the business and therefore,notice under Section 158BD of the Act was issued to the assessee on13.6.2000, as the proprietor of the concern Ram Plylam. In response to https://hcservices.ecourts.gov.in/hcservices/ the notice, the assessee filed a return in Form 2B on 3.7.2000 declaringundisclosed income as nil. 2.2. Later, in response to the notice under Sections 142(1) and 143(2), the assessee was heard and an explanation was offered that thematerial seized during the search were in no way connected to theassessee. But, the Assessing Officer, without appreciating theexplanation offered by the assessee, passed an assessment order underSection 158BD read with 158BC and 143(3), computing the undisclosed incomeas under, 2.3. Aggrieved by the said assessment order, the assessee preferredan appeal before the Commissioner of Income Tax, who, by order dated24.12.2002, held that the seized materials referred to by the AssessingOfficer related to Sri Raghuveer Timbers and Sri Muralikrishna & Co., asthere was no indication in the seized materials about the suppression ofsales by the business concern of the assessee, viz. Ram Plylam and thatthe Assessing Officer was not correct in invoking Section 158BD of theAct. It was further held that the Assessing Officer had not computed theundisclosed income based on the materials, but merely on the basis thatthe family members of the assessee had moved before the SettlementCommission disclosing additional income by offering gross profit at 8% andheld that the same cannot be a valid reason for invoking Section 158BB ofthe Act, inasmuch as Section 158BB, as amended by Finance Act, 2002 withretrospective effect from 1.7.1995 contemplates that the undisclosedincome shall be computed in accordance with the provisions of that Act onthe basis of evidence found as a result of search and such other materialor information as were available with the Assessing Officer and relatableto such evidence. Accordingly, the Commissioner has held that there wasno basis for passing an order under Section 158BD read with Sections 158BC and 143(3) of the Act for thealleged undisclosed income. Section 158BD read with Sections 158BC and 143(3) of the Act for thealleged undisclosed income. 2.4. On further appeal by the Revenue, the Income Tax AppellateTribunal, by order dated 18.8.2006, partly allowed the appeal. Hence,the above appeal raising the following substantial questions of law. (i) Whether in the facts and circumstances of the case, theTribunal was right in holding that the addition of gross profitcould be made only in respect of one of the assessment years inthe block? (ii) Whether in the facts and circumstances of the case, theTribunal was right in holding that the undisclosed income cannotbe assessed as no material relating to the assessee was foundduring the search, even though information was arrived at duringthe block assessment of the related concerns? 3. Concededly, the seized materials did not relate to the assessee.On the other hand, what is contemplated under Section 158BB is that theundisclosed income shall be computed only in accordance with theprovisions of the Act on the basis of evidence found as a result of searchand such other material or information which are relating to suchmaterial. If the material seized do not, in any way, connects theassessee indicating that the assessee had any undisclosed income, it maynot be proper to proceed against the assessee under Section 158BD readwith Sections 158BC and 143(3) of the Act without any basis whatsoever,especially in the absence of any material indicating any suppression ofsales or suppression of income by the assessee. 4. If that be so, we do not have any hesitation to hold that theundisclosed income cannot be assessed in the absence of any materialcollected during the search relating the assessee and that the Revenuecannot proceed on the basis of such material which is not related to theassessee invoking Section 158BD read with Sections 158BC and 143(3) of theAct for assessing the undisclosed income during the block period of 1988-89 to 1997-98 and 1.4.1998 to 5.11.1998. If the Revenue could able tosubstantiate that the return filed by the assessee for the assessmentyears 1996-97, 1997-98 and 1998-99 does not disclose the correct income,they are at liberty to take appropriate action only with respect to therelevant assessment years, as rightly held by the Tribunal. Finding no substantial question of law, the appeal stands dismissed. Sub Asst.Registrar kpl https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, III Floor,Besant Nagar, Chennai - 90. 2. The Income Tax Appellate Tribunal'Bench B' Chennai. 3. The Commissioner of Income Tax (Appeals)Central - I, Chennai - 34. 4. The Deputy Commissioner of Income Tax,Central Circle I(1) Chennai - 34. SSV(CO)RVL 26.04.2007 T.C.No.385 of 2007.