Commissioner Of Income Tax, Central-1, New Delhi v. Shailendra Mahto

* IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 127/2012 Reserved on : 1[st ]August, 2014 Date of decision: 11[th] November, 2014 COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI ..... Appellant Through Mr. Rohit Madan, Mr. P. Roychaudhury & Mr. Akash Vajpai, Advocates. versus SHAILENDRA MAHTO ..... Respondent Through Mr. Ajay Burman & Mr. Aditya Swarup, Advocates. INCOME TAX APPEAL NO. 128/2012 COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI ...... Appellant Through Mr. Rohit Madan, Mr. P. Roychaudhury & Mr. Akash Vajpai, Advocates. versus SIMON MARANDI ..... Respondent Through Mr. Ashok Sikka, Advocate. INCOME TAX APPEAL NO. 131/2012 COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI ..... Appellant Through Mr. Rohit Madan, Mr. P. Roychaudhury & Mr. Akash Vajpai, Advocates. versus JHARKHAND MUKTI MORCHA ..... Respondent Through Ms. Prem Lata Bansal, Sr. Advocate with Mr. Ram Avtar Bansal & Mr. Naman Nayak, Advocates. ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 1 of 59 INCOME TAX APPEAL NO. 133/2012 COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI ..... Appellant Through Mr. Rohit Madan, Mr. P. Roychaudhury & Mr. Akash Vajpai, Advocates. versus SHIBU SOREN ..... Respondent Through Ms. Prem Lata Bansal, Sr. Advocate with Mr. Ram Avtar Bansal & Mr. Naman Nayak, Advocates. INCOME TAX APPEAL NO. 137/2012 COMMISSIONER OF INCOME TAX, CENTRAL-1, NEW DELHI ..... Appellant Through Mr. Rohit Madan, Mr. P. Roychaudhury & Mr. Akash Vajpai, Advocates. versus SURAJ MANDAL ..... Respondent Through Ms. Pratiksha Sharma, Advocate. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J.: These appeals by the Revenue, Commissioner of Income Tax, Central-1, New Delhi, are being disposed of by this common judgment as identical and connected issues arise for consideration. The impugned order dated passed by the Income Tax Appellate Tribunal („Tribunal‟, for short) is dated 2[nd] September, 2011 and is a common order to the five cases. By order dated 4[th] September, 2012, the following substantial questions of law were admitted for hearing:- ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 2 of 59 “(i) Did the Tribunal fall into error in holding that the amount brought to tax by the AO is not undisclosed income? (ii) Did the Tribunal fall into error in setting-aside the findings of lower authorities that the amounts deposited by the assessees with the bank were not taxable as income?” 2. These appeals pertain to block assessment periods of ten years beginning from 1[st] April, 1986 to 26[th] April, 1996 in the case of Shibu Soren, Suraj Mandal, Shailender Mahto and Simon Marandi. In the case of the said respondent-assessees, notice under Section 158BC of the Income Tax Act, 1961 („Act‟, for short) was issued. In the case of Jharkhand Mukti Morcha party („JMM‟, for short), notice under Section 158BD read with Section 158BC was issued and the block assessment period is from 1[st]April, 1986 to 27[th] September, 1996. 3. In the block assessment proceedings of the individual assessee, the Assessing Officer had made the following additions:- 4. In the case of Jharkhand Mukti Morcha, the Assessing Officer assessed the total income for the block period as Rs.2,36,19,160/- on protective basis out of which undisclosed income of Rs.1,29,98,449/- was ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 3 of 59 3. In the block assessment proceedings of the individual assessee, the Assessing Officer had made the following additions:- 4. In the case of Jharkhand Mukti Morcha, the Assessing Officer assessed the total income for the block period as Rs.2,36,19,160/- on protective basis out of which undisclosed income of Rs.1,29,98,449/- was ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 3 of 59 assessed on protective basis in the regular assessment proceedings under Section 143(3) of the Act for the Assessment Year 1994-95. The undisclosed income of the assessee for the block period added on protective basis was Rs.1,06,20,711/-. The break-up of the total income computed in the block assessment on protective basis as per paragraph 8 of the impugned order is as under:- 5. The respondent-assessees preferred appeals before the Tribunal and have succeeded with the block assessment proceedings being annulled or declared void on the ground that the additions made did not represent undisclosed income and should not have been made in the block assessment orders. These additions could have been only made in regular/normal assessment proceedings under Section 143(3) or Section 147 read with Section 148 of the Act, as the amounts/additions made did not represent undisclosed income as defined in Section 158B(b) read with Sections 158BA(2), 158BB(1) etc. of the Act. In the case of JMM, it was held that as no incriminating evidence was found during the course of search in the case of the searched persons, i.e. Shibu Soren, Suraj Mandal, Shailendra Mahto and Simon Marandi, there cannot be any evidence, which justified invoking provisions of Section 158BD of the Act. In the ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 4 of 59 absence of incriminating evidence, block assessment proceeding against JMM, were a nullity and bad being contrary to law. 6. Search warrants under Section 132(1) of the Act were issued and executed on Punjab National Bank, Naoroji Nagar, New Delhi on 26[th]April, 1996, in respect of Savings Bank Accounts (SB A/cs, for short) and Fixed Deposit Receipt Accounts (FDRs, for short) which are detailed as under:- These SB A/cs and FDRs were in the name of the four individual assessees, jointly and individually. These accounts were placed under prohibitory orders under Section 132(3) of the Act. Subsequently, jurisdiction of the five respondent-assessees was transferred to Additional Commissioner of Income Tax (Central), Circle-6, New Delhi under Commissioner of Income Tax, Delhi, Circle-I as per order under Section 127 of the Act dated 2[nd] December, 1996. Thereafter, notices under Section 158BC were issued to the individual assessees and notice under Section 158BD read with Section 158BC of the Act was issued to JMM. ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 5 of 59 Legal Provisions and Interpretation 7. In order to appreciate and decide the legal controversy, it would be appropriate to first reproduce relevant provisions of Chapter XIV-B “Procedure for Assessment and Search Cases”, which would be applicable to the respondent-assessees. These are Sections 158B clause (b), 158BA, 158BB, 158BC and 158BD of the Act. The said provisions post amendment vide Finance Act, 2002 with retrospective effect from 1[st] July, 1995, read as under:- “Section 158B. In this Chapter, unless the context otherwise requires, - xxx ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 5 of 59 Legal Provisions and Interpretation 7. In order to appreciate and decide the legal controversy, it would be appropriate to first reproduce relevant provisions of Chapter XIV-B “Procedure for Assessment and Search Cases”, which would be applicable to the respondent-assessees. These are Sections 158B clause (b), 158BA, 158BB, 158BC and 158BD of the Act. The said provisions post amendment vide Finance Act, 2002 with retrospective effect from 1[st] July, 1995, read as under:- “Section 158B. In this Chapter, unless the context otherwise requires, - xxx (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 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. 1[st] 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 ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 6 of 59 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 of the block period irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not. —Explanation.For the removal of doubts, it is hereby —declared that (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of every previous year included in the block period. (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 are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. (underlined portion was inserted by Finance Act (No.2), 1998 w.r.e.f. 1[st] July, 1995) xxx ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 7 of 59 (underlined portion was inserted by Finance Act (No.2), 1998 w.r.e.f. 1[st] July, 1995) xxx ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 7 of 59 158-BB. Computation of undisclosed income of the block period.—(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, 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 Assessing Officer and relatable to such evidence], as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, —determined, (a) where assessments under Section 143 or Section 144 or Section 147 have been concluded prior to the date of commencement of the search or the date of requisition, on the basis of such assessments; (b) where returns of income have been filed under Section 139 or in response to a notice issued under sub-section (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 Section 139 has not expired, on the basis of entries relating to such income or transactions 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 relating to such previous years; (e) where any order of settlement has been made under sub-section (4) of Section 245-D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of Section 158-BC, on the basis of such assessment. —Explanation.For the purposes of determination of —undisclosed income, (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of this Act without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32: Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement; (c) assessment under Section 143 includes determination of income under sub-section (1) or sub-section (1-B) of Section 143. Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement; (c) assessment under Section 143 includes determination of income under sub-section (1) or sub-section (1-B) of Section 143. (2) In computing the undisclosed income of the block period, the provisions of Sections 68, 69, 69-A, 69-B and 69-C shall, so far as may be, apply and references to “financial year” in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. (3) The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee. (4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (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. 1[st] 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 ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 10 of 59 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 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 days but not more than forty-five days, as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of Section 142, setting forth his total income including the undisclosed income for the block period: Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158-BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply; (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 11 of 59 Provided that no notice under Section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158-BB and the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply; (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 11 of 59 determine the tax payable by him on the basis of such assessment. xxx 158-BD. Undisclosed income of any other person.—Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 or whose books of account or other documents or any assets were requisitioned under Section 132-A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly.” 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. Undisclosed income for the purpose of the Chapter could include any money, bullion, jewellery or other article, valuable article or thing or even income based on entry in books of accounts and other documents of transactions, which had not been or would not have been disclosed for the purposes of this Act. By retrospective amendment inserted by Finance Act, 2002 with effect from 1[st] July, 1995, any expense, deduction or disallowance claimed under the Act, which was found to be false was also treated as undisclosed income. An inclusive definition is to be read broadly and in a wide manner and should not be given a restrictive meaning. The expression “undisclosed income” with effect from 1[st] July, 1995, therefore, would mean and include any false expenditure, deduction or allowance claimed under the Act but was found to be false, or any ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 12 of 59 money, bullion, jewellery, valuable article or thing, that had not been or would not have been disclosed and also included any income based on entry in the books of accounts or other documents, which had not been disclosed or would not have been disclosed for the purposes of this Act. The crucial and singularly pre-eminent expression used in the said clause is “has not been or would not have been disclosed” for the purposes of this Act. We shall be subsequently referring to, in detail, the judgment of the Supreme Court in Assistant Commissioner of Income Tax, Chennai vs. A. R. Enterprises, (2013) 3 SCC 196, but suffice at this stage, it is to notice and reproduce the following paragraph from A. R. Enterprises (supra):- money, bullion, jewellery, valuable article or thing, that had not been or would not have been disclosed and also included any income based on entry in the books of accounts or other documents, which had not been disclosed or would not have been disclosed for the purposes of this Act. The crucial and singularly pre-eminent expression used in the said clause is “has not been or would not have been disclosed” for the purposes of this Act. We shall be subsequently referring to, in detail, the judgment of the Supreme Court in Assistant Commissioner of Income Tax, Chennai vs. A. R. Enterprises, (2013) 3 SCC 196, but suffice at this stage, it is to notice and reproduce the following paragraph from A. R. Enterprises (supra):- “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 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 ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 13 of 59 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 have been taxed including wrong deduction or disallowance claimed and allowed earlier. The retrospective amendment is an indication that even the entries recorded in the books of accounts or other documents of transaction could become subject matter of undisclosed income if found to be false and accordingly deduction or disallowance should not have been allowed or claimed. 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 have been taxed including wrong deduction or disallowance claimed and allowed earlier. The retrospective amendment is an indication that even the entries recorded in the books of accounts or other documents of transaction could become subject matter of undisclosed income if found to be false and accordingly deduction or disallowance should not have been allowed or claimed. 10. Section 158BA(1) of the Act begins as a non-obstante provision giving primacy to the procedure prescribed under Chapter XIV-B of the Act to the exclusion of other provisions of the Act where search was conducted after 30[th] June, 1995 up to 31[st] May, 2003 (see Section 158BI of the Act), or books of accounts or other documents of the assessee had been requisitioned in the aforesaid period. Sub-section (2) stipulates that the rate of tax as specified in Section 113 shall apply to income calculated for the block period irrespective of the previous years to which the income relates and irrespective of the fact whether regular assessment for any one or more assessment years was pending or not. Explanation which was inserted by the Finance (No. 2) Act, 1998 with retrospective effect from 1[st]July, 1995 is a cause of some debate, as do the subsequent amendments by ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 14 of 59 Finance Act, 2002 again with retrospective effect from 1[st] July, 1995. The amendments incorporated by the Finance Act, 2002 reflect the position that there was a greater clarity and understanding, regarding block assessment proceedings when the Finance Act, 2002 was enacted. It reflects the march of law, as there was greater and better appreciation and the amendments negate the ill effects and problems noticed in practice (This aspect has been also examined below with reference to the decision in N.R. Paper and Board Ltd & Ors versus Deputy Commissioner of Income Tax (1998) 234 ITR 733 (Guj.)). Coming back to the explanation inserted by the Finance Act (No. 2) Act, 1998 with retrospective effect from 1[st] July, 1995, it declares for removal of doubt that assessment under Chapter XIV-B shall be in addition to regular assessment for each of the previous year in the block period; total undisclosed income in the block period would not include income included in regular assessment; and income assessed under Chapter XIV-B shall not be included in the regular assessment of previous years. The aforesaid explanation supports in view that there would be two assessments in the cases of search or when Section 132A is invoked, i.e. normal/regular assessments under Section 143(1) or (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 ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 15 of 59 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. ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 15 of 59 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 subject matter of the block assessment. Sub-section (1) refers to the evidence found as a result of search or requisition of books of accounts or other documents and such other information as was available with the Assessing Officer and relatable to such evidence. It postulates that evidence found as a result of search or requisition of books of accounts or documents as well as other information relatable to such evidence could be taken into consideration for the purpose of undisclosed income for the block period. The income so calculated shall be increased or reduced by the aggregate of total income or loss of previous years which have been determined where assessment under Section 143/144/147 of the Act had concluded prior to the date of commencement of search or date of requisition; but, where returns of income have been filed under Section 139/142(1)/148 of the Act, then such increase or reduction shall be done on the basis of income disclosed in such returns. Section 158BB(2)(b) of the Act is indicative that the returned income, where assessment had not been concluded or made, the returned income would be treated as disclosed income and any other income on the basis of evidence found during the course of search or requisition of books of accounts or documents with other evidence relatable to such evidence would be treated as undisclosed income and accordingly made subject matter of the block assessment. The controversy that would remain is whether in view of the said clause (b) where ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 16 of 59 assessments were pending, additions in block assessment could still be made where no material or evidence was found in the search relatable to the disclosed income declared in the return, or the addition should be made in regular assessment. Preponderance of the judicial opinion appears to be in favour of the normal or regular assessment and not for additions under the head „undisclosed income‟ in the block assessment. Of course, this would not apply where material has been found during the course of search or on further enquiry relatable to such material or in cases where expense, deduction or allowance claimed under the Act was found to be false. In such cases, additions could be made under sub-section (1) to Section 158BB of the Act. 12. At this stage, it will be relevant to also refer to Section 158BA(3) of the Act. Sub-section (3) to Section 158BA of the Act relates 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 books of accounts 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 accounts 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 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 ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 17 of 59 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 Finance Act, 2002 with retrospective effect from 1[st] July, 1995. The substituted clause (c) deals with cases where due date of filing of returns of income had expired but no return of income had been filed, when either of the two conditions were satisfied. As per sub-clause (A) of clause (c), income for the block assessment would be computed on the basis of entries as recorded in the books of accounts and other documents maintained in normal course where such entries result in computation of loss for any previous year falling in the block period. Sub-clause (B) would only apply in a case where the income, as a result of entries in the books of accounts and other documents maintained in normal course on or before the date of search or requisition did not exceed maximum amount not chargeable to tax. Clause (ca) deals with cases not covered by clause (c) i.e. when no return of income had been filed, but income was taxable. Thus, where the due date of filing of return had lapsed but no return had been filed and computation was not at a loss or below the taxable limit, income as per the books of accounts shall be treated as „nil‟, even if as per the books of accounts and other documents maintained in normal course, the income disclosed was above the taxable limit. In such cases, irrespective of the figures in the books of accounts or documents, income has to be by default, taken as „nil‟. Clause (ca) would apply only when the date of filing of return has expired and return of income has not been filed. ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 18 of 59 15. Clause (d) would apply to cases where previous year has not ended or date of filing of return under Section 139(1) has not expired. In such cases income has to be computed on the basis of entries relevant to such income or transactions recorded in the books of accounts or other documents maintained in the normal course on or before the date of search. 16. We need not, for the purpose of present examination, refer to clauses (e) and (f) which deals with cases where there has been settlement order under Section 245D(4) or an earlier search assessment under Section 158BC under clause (c) has been made. Explanation clauses (a) and (b) are not relevant, but clause (c) of the explanation is of some relevance. The said clause stipulates that assessment under Section 143 includes determination under Section 143(1) or Section 143(1B). Thus, summary assessments are also treated as regular/normal assessment for the purpose of Section 158BB. Sub-section (2) to Section 158BB states that provisions of Section 68, 69, 69A, 69B and 69C shall apply and references to financial year in the said sections will be construed as reference to relevant previous year in the block period including previous year ending with the date of search. Sub-section (3) states that the burden of proving that undisclosed income has already been disclosed in the return filed before the commencement of search, or the date of requisition of documents, shall be on the assessee. We are not concerned and are not required to deal with sub-section (4) to Section 158BB of the Act. 17. Section 158BC of the Act relates to procedure for block assessment and postulates issue of notice for filing of return for block assessment. The first proviso states that in such cases, no notice under Section 148 was required. Thus, it does away with the requirement of notice under Section ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 19 of 59 148 and recording of reasons for the same. The said proviso is to be read with sub-section (1) to Section 158BA which gives an overriding primacy to Chapter XIV-B. Second proviso states that no revised return for block assessment can be filed. Clause (b) of Section 158BC states that the Assessing Officer shall proceed to determine undisclosed income for the block assessment period and provisions of Sections 142, 143(2), 143(3), 144 and 145 shall apply and as per 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. 18. Section 158BD of the Act deals with assessment of undisclosed income of a person who has not been searched or person whose books of accounts or other documents or assets were not seized or requisitioned under Section 132A. It requires that the Assessing Officer of the person who was searched or books of accounts or documents requisitioned, should record a satisfaction note that undisclosed income belonging to a third person had been seized or had been uncovered and in such cases the assets, books of accounts, documents etc. should be handed over to the Assessing Officer having jurisdiction over such other person, who shall proceed under Section 158BC and accordingly provisions of Chapter XIV-B shall apply. This provision has been interpreted recently by the Supreme Court in Commissioner of Income Tax – III vs. Calcutta Knitwears, Ludhiana, (2014) 6 SCC 444, where it has been observed as under:- “38. We would certainly say that before initiating proceedings under Section 158-BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158-BC of the Act should be satisfied that there is an ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 20 of 59 undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132-A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158-BD the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158-BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158-BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts was made under Section 132-A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person.” Facts of he present case and applicable provisions Facts of he present case and applicable provisions 19. It would be now relevant to refer to the facts of the present cases, the finding of the Tribunal and contentions of the parties. Shailendra Mahto, Suraj Mandal and Simon Marandi had never filed income tax returns under Section 139 of the Act between 1[st] April, 1986 and 26[th] April, 1996. They were never assessed to tax for the said period. Shailendra Mahto, in fact, did not file returns even on issue of notice under Section 158BC of the Act. Shibu Soren filed return for assessment year 1994-95 on 31[st] March, 1996. ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 21 of 59 The due date for filing of return for the assessment year 1994-95 was 30[th]June, 1994. The said return certainly cannot be treated as return under Section 139(1) and, therefore, would be inconsequential for the purpose of computing income earned in a regular/normal assessment. In order to take the said return on record, the Assessing Officer was required to issue notice under Section 147 or 148 of the Act. But the said notice was not required in the factual matrix of the present case because of the search on 26[th] April, 1996. As far as JMM is concerned, as noticed above, notice was issued under Section 158BD read with Section 158BC and block assessment order was passed for the period 1[st] April, 1986 to 26[th] September, 1996. The JMM had not filed returns from 1988 to 1992 and return for assessment year 1992-93 and 1993-94 were filed on 12[th] July, 1996 and return for the assessment year 1992-93 and 1993-94 was filed on 12[th] July, 1996 pursuant to notice under Sections 147/148 of the Act and for the assessment year 1994-95 the return was filed on 31[st] March, 1996. This again was after the due date for filing of return for that assessment year. However, as the case of JMM would fall in a different category, it is being accordingly dealt with. 20. The block assessment orders in the case of individual assessees would show that the major and substantial amount of undisclosed income relates to the period between 1[st] April, 1993 and 31[st] March, 1994. It was in this period that substantial deposits were found in the bank accounts. The details and deposits in a bank in each of the four cases of the individual assesses was as under:- ITA Nos. 127/2012, 128/2012, 131/2012, 133/2012 & 137/2012 Page 22 of 59 21. In view of the aforesaid factual position, in the present case sub-clause (ca) of Section 158BB(1) would be applicable as no return of income was filed by the individual asseessee before the due date of filing of return. The income returned accordingly would be treated as NIL inspite of the entries, if any, in the books of accounts or documents. It is correct that Shibu Soren had filed return for the assessment year 1994-95 on 31[st]March, 1996, but this would be a return under Section 139(4) of the Act which permits filing of a belated return, but it would not be a return under Section 139(1) of the Act. Therefore, this return cannot be treated as a return filed before the due date. Possibly, the respondent assessees could have also claimed applicability of clause (c) to Section 158BB in relation to the year of search, but, the onus to prove that benefit of clause (c) would be applicable is on the individual assessee. 22. We would, now, like to reproduce the legal position as elucidated in A. R. Enterprises, (supra), wherein the Supreme Court has observed :- 22. We would, now, like to reproduce the legal position as elucidated in A. R. Enterprises, (supra), wherein the Supreme Court has observed :- “Hence, the computation of "undisclosed income" for the purposes of Chapter XIV-B has to be construed in terms of the "total income" received, accrued, arisen; or which is deemed to have been received, accrued or arisen in the p