Commissioner Of Income Tax (Central) Ludhiana v. Sh.girdhari Lal Bassi

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITA No. 129 of 2005 Date of decision: 4.8.2010 Commissioner of Income Tax (Central) Ludhiana -----Appellant Vs. Sh.Girdhari Lal Bassi ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Krishan Kumar Mehta, Advocate for the revenue. Mr. Pankaj Jain, Advocate for the respondent-assessee.Mr. Pankaj Jain, Advocate for the respondent-assessee.Adarsh Kumar Goel,J. 1.This appeal has been preferred by the revenue undersection 260A of the Income Tax Act, 1961 (for short, ‘the Act’) againstorder dated 5.10.2004 passed by the Income Tax Appellate Tribunal,Chandigarh Bench ‘B’, Chandigarh in ITA No.1064/Chandi/96 for theblock period 1.4.1985 to 11.8.1995, proposing to raise followingsubstantial questions of law:- i)Whether on the facts and in the circumstances ofthe case, the ITAT was correct in law to decidethe issue of unexplained cash of Rs.45 lacs in ablock assessment order, by following the order ofCIT(A) dated 18.3.1999, which was on the issueof allowability of interest in a regular assessmentorder?the case, the ITAT was correct in law to decidethe issue of unexplained cash of Rs.45 lacs in ablock assessment order, by following the order ofCIT(A) dated 18.3.1999, which was on the issueof allowability of interest in a regular assessmentorder? ii)Whether on the facts and in the circumstances ofthe case, the ITAT was correct in law in ignoringthe primary evidence detailed in the blockassessment order and which had also not beenthe case, the ITAT was correct in law in ignoringthe primary evidence detailed in the blockassessment order and which had also not been iii) iv) v) considered by the CIT(A) in his order dated18.3.1999? Whether on the facts and in the circumstances ofthe case, the ITAT was correct in law indischarging its function as the first appellateauthority by just following the decision of the CIT(A) dated 18.3.1999 given in a different context?Whether on the facts and in the circumstances ofthe case, the ITAT was correct in law in holdingthat the stated NRI gifts totaling Rs.7,50,000/- andinvestment of Rs.8,21,175/- in vehicles wereexplained even when these had been voluntarilysurrendered by the assessee during blockassessment proceedings? Whether on the facts and in the circumstances ofthe case, the ITAT was correct in law in deletingthe addition of Rs.4,22,973/- representing incomedeclared in belated return for assessment year1995-96, disregarding express provisions ofsection 158BB(1)(c) of the IT Act? 2. The assessee is an individual and is engaged in propertydealing. Search and seizure operation was carried out at the premises ofthe assessee on 11.8.1995 leading to seizure of number of documentsand account books in addition to cash amount of Rs.47.27 lacs. Sum ofRs.46 lacs was seized in absence of explanation about the source ofamount. Notice under Section 158BC of the Act was issued to theassessee in response to which return of the block year 1.4.1985 to11.8.1995 was filed by the assessee declaring Nil income. Duringassessment, the assessee explained the cash recovered as being theamount withdrawn from the bank and a certificate dated 5.2.1996 was 2. The assessee is an individual and is engaged in propertydealing. Search and seizure operation was carried out at the premises ofthe assessee on 11.8.1995 leading to seizure of number of documentsand account books in addition to cash amount of Rs.47.27 lacs. Sum ofRs.46 lacs was seized in absence of explanation about the source ofamount. Notice under Section 158BC of the Act was issued to theassessee in response to which return of the block year 1.4.1985 to11.8.1995 was filed by the assessee declaring Nil income. Duringassessment, the assessee explained the cash recovered as being theamount withdrawn from the bank and a certificate dated 5.2.1996 was also produced. This explanation was not found to be acceptable. TheAssessing Officer ascertained facts by conducting a survey on UnionBank of India under section 133A of the Act on 20.3.1996. From thesurvey, it was found that the bank records had been manipulated. Theplea that over-draft limit was extended to the assessee which had acredit balance on 8.8.1995 out of which a sum of Rs.45 lacs waswithdrawn was negatived by the over draft balance book showingbalance as on 8.8.1995 to be only less than Rs.3 lacs. The cheque dated8.8.1995 for withdrawal of Rs.45 lacs was issued from a cheque bookwhich itself was issued to him on 6.9.1995. The scroll register andoverdraft balance book showing actual cash receipt was dated15.9.1995 and not 8.8.1995. The Bank Manager Shri J.N.Aroraadmitted that entry of withdrawal of Rs.45 lacs was cooked up at theinstance of the assessee. The certificate issued to the assessee dated5.2.1996 filed before the Assessing officer on 2.3.1996 wasaccordingly withdrawn. After this survey was conducted and thesefacts were found, the assessee filed revised return on 30.4.1996appending note to the return to the following effect:- “In the original return filed due to somemisunderstanding and ill advise, no amount wassurrendered. Later on, after going through therecords, a sum of Rs.55 lacs has been surrendered.Any correspondence relating to the seizure amountmay be treated as withdrawn. The earlier action ofnot disclosing the amount is regretted. In addition to the amount found at the time ofsearch, some more amount has been disclosed onestimated basis as it has been found later on that some of the pages of the seized diary were missingand as such exact calculation of the amount to bedisclosed, could not be made.” 3. Return was duly verified by the assessee and wasaccompanied by Vakalatnama signed by him in favour of his counselShri Subhash Aggarwal. In these circumstances, the Assessing Officercompleted assessment vide order dated 30.8.1996 under section 158BAof the Act holding that sum of Rs.45 lacs so seized from the assesseeduring search represented his undisclosed income. Apart from the saidamount, other additions were also made which included amountrepresenting foreign gifts received by the assessee and unexplainedinvestment in purchase of cars. In the bank account seized during thesearch, there were entries showing amount received from NRIs as gifts.The assessee was duly confronted with the said entry and statement ofthe assessee was recorded. Unable to give any valid explanation, hesurrendered the amount of the gifts as income. The assessee also inresponse to a questionnaire about the source of investment in carowned by him, offered the investment in the car as undisclosed incomefor the block year. Similarly, he also surrendered the amount ofinvestment in purchase of another car which was not in his name but inthe name of his nephew. 4.Aggrieved by the order of assessment, the assesseeapproached the Income Tax Appellate Tribunal and challenged theadditions. The Tribunal upheld the plea of the assessee and deleted theadditions. The findings recorded by the Tribunal are as under:- i)With regard to addition of Rs.45 lacs: 4.Aggrieved by the order of assessment, the assesseeapproached the Income Tax Appellate Tribunal and challenged theadditions. The Tribunal upheld the plea of the assessee and deleted theadditions. The findings recorded by the Tribunal are as under:- i)With regard to addition of Rs.45 lacs: “…We find that the dispute is the addition of Rs.45 lacs outof Rs.55 lacs, as the assessee has not disputed such additionof Rs.10 lacs before us. So far as dispute relating to Rs.45lacs is concerned, the assessee claims that the same was outof withdrawals from the bank, whereas the revenue hastreated the same as income from undisclosed sources. Wefind that the AO has made the impugned addition in respectof Rs.45 lacs basically relating to the finding of the ADITvide survey of the bank on 20.3.1996 and considering thestatement of the assessee vide revised return (though notaccepted as no such provision under law existed) andobserving that such transaction with the bank by theassessee on 8.8.1995 was not true as the assessee hadconnived with the Bank officials by manipulating bankrecord. However, we find that the CIT(A) whileadjudicating appeal of the assessee for assessment year1996-97, to which period 8.8.1995 and 15.9.1995 relateshas discussed the issue at length from pages 6-10 of hisorder, wherein the CIT(A) has gone through the followingdocuments:- i)Cheque dated 8.8.1995ii)Photocopy of the bank account No.17129iii)Photocopy of the certificate dated 29.12.1995iv)Photocopy of the certificate dated 5.2.1996ii)Photocopy of the bank account No.17129iii)Photocopy of the certificate dated 29.12.1995iv)Photocopy of the certificate dated 5.2.1996 v)Letter dated 3.4.1996 withdrawing thecertificate issued earlier.certificate issued earlier. vi)Letter dated 8.4.1996 issued by the appellant tothe bank.the bank. vii)Letter dated 9.4.1996 issued by the branchmanager to his General Manager seekinginstructions.manager to his General Manager seekinginstructions. viii) Letter dated 29.8.1996 indicating total amountof interest charged on the overdraft.of interest charged on the overdraft. ix)Letter dated 9.11.1998 showing bifurcation ofinterest charged from 1.4.1995 to 7.8.1995 and8.8.1995 to 31.3.1996.interest charged from 1.4.1995 to 7.8.1995 and8.8.1995 to 31.3.1996. v)Letter dated 3.4.1996 withdrawing thecertificate issued earlier.certificate issued earlier. vi)Letter dated 8.4.1996 issued by the appellant tothe bank.the bank. vii)Letter dated 9.4.1996 issued by the branchmanager to his General Manager seekinginstructions.manager to his General Manager seekinginstructions. viii) Letter dated 29.8.1996 indicating total amountof interest charged on the overdraft.of interest charged on the overdraft. ix)Letter dated 9.11.1998 showing bifurcation ofinterest charged from 1.4.1995 to 7.8.1995 and8.8.1995 to 31.3.1996.interest charged from 1.4.1995 to 7.8.1995 and8.8.1995 to 31.3.1996. After perusal of the above documents, the CIT(A) held thatsuch cash was withdrawn by the assessee on 8.8.1995 andthe certificate earlier issued by the Bank was subsequentlywithdrawn under pressure of the ADI. The CIT(A) hasfurther observed that the Bank has charged interest on suchoverdraft from 8.8.1995 and not from 15.9.1995, whichitself suggested that cash was available with the assesseeout of withdrawals made on 8.8.1995. We also find thatsuch finding of the CIT(A) has not been challenged by therevenue by filing appeal which suggest that the departmenthas nothing to say against such order, we therefore,observing the totality of facts and circumstances of thecase, are of the opinion that the revenue in this case couldnot bring sufficient material on record which could suggestthat the cash found was on account of undisclosed sources.Whereas the CIT(A) while disposing of the appeal fora.y.96-97 has categorically held that such cash availablewith the assessee was out of withdrawals made from bankon 8.8.1995, we find that such finding of the CIT(A) isbased on after evaluating all the events and documents inthis regard and more important the revenue has notpreferred any appeal against such finding of the CIT(A),which signifies as to the acceptance of the order of the CIT(A) by the revenue. We, therefore, based on abovediscussion, are of the considered view that so far as theaddition of Rs.45 lacs is concerned, the same is notjustified as the assessee has duly explained as to thegenuineness of availability of such cash and also confirmedby the CIT(A) while disposing of appeal for a.y.96-97. We,therefore, delete the addition of Rs.45 lacs out of Rs.55 lacsmade by the AO. However, since the assessee has notdisputed the balance of Rs.10 lacs in his appeal, the same isconfirmed. Grounds stand partly accepted. ii)Addition of Rs.7.5 lacs towards NRI gifts: “We after hearing both the parties and perusing the caselaw cited find that if any income or asset is duly disclosedin the books of account and same is filed alongwith regularreturn the same is outside the scope of undisclosed income.While arriving at such conclusion, we find support fromthe judgment cited supra, including decisions of this Bench,wherein it has been held that NRI gifts disclosed in regularreturn of income, the same cannot be added in blockassessment. We, therefore, based on our above discussionand following the various decisions hereinabove, delete theaddition made by the AO and accept the ground raised bythe assessee in this regard.” iii)Additions on account of unexplained investment in car: “We after hearing both the parties and perusing the recordfind that such purchase of car was made out of withdrawalsfrom NRI bank account of Shri Vinod Kumar, dulyconfirmed by the Bank while issuing certificate and alsoconfirmed by Shri Vinod Kumar. Since the source has dulybeen confirmed by the bank and also by the lender, in ourconsidered view, the AO was not justified in treating thesame as income from undisclosed sources. We, therefore,delete the impugned addition and accept the ground. iii)Additions on account of unexplained investment in car: “We after hearing both the parties and perusing the recordfind that such purchase of car was made out of withdrawalsfrom NRI bank account of Shri Vinod Kumar, dulyconfirmed by the Bank while issuing certificate and alsoconfirmed by Shri Vinod Kumar. Since the source has dulybeen confirmed by the bank and also by the lender, in ourconsidered view, the AO was not justified in treating thesame as income from undisclosed sources. We, therefore,delete the impugned addition and accept the ground. We after hearing the parties and perusing the record findthat purchase/sale of the car was made through bankaccount of Shri Vinod Kumar as confirmed by him as wellas the bank certificate, the fact which could not beconverted by learned DR and the AO could not bringanything material on record in support of his finding thatsuch car was purchased by the assessee out of hisundisclosed income. We, are therefore, of the opinion thatthe AO was not justified in ignoring such transaction in thename of Shri Vinod Kumar and treating the same as income of the assessee. We, therefore, delete the impugnedaddition and accept the ground.” iv)Deletion on account of income not being undisclosedin view of return filed for the assessment year 1995-96 “We have also considered the various case law, wherein ithas been held that income already shown and determinedearlier cannot be a part of undisclosed income and onlyincome given under section 158B(b) can be assessed underChapter XIVB. We, therefore, based on the totality of factsand circumstances of the case and also following thedecisions of various courts including that of theChandigarh Bench of the ITAT, are of the view that interestand rental income regularly shown by the assessee cannotbe a part of undisclosed income. We, therefore find that theAO was not justified in treating such income asundisclosed and charging tax @ 60%. We accordingly setaside the findings of the AO and accept the ground raisedby the assessee in this regard.” 5. We have heard learned counsel for the parties and perused the record. 6.Learned counsel for the revenue submitted thatunexplained cash of Rs.45 lacs was rightly added as income fromundisclosed sources on account of there being no explanation at thetime of seizure of the cash, the plea of amount being available inoverdraft and having been withdrawn from the bank having been foundto be false during survey conducted on the bank premises withreference to the record of the bank leading to withdrawal of certificateissued in favour of assessee by the Bank and further stand of theassessee in the revised return on 30.4.1996 accepting the amount as undisclosed income. He submits that finding recorded by the Tribunalis perverse in ignoring the said material merely on the ground that theCIT(A) accepted the plea of the assessee for subsequent assessmentyear 1996-97 relating to assessment of interest income of the saidamount, which finding was not challenged by the revenue. He submitsthat each assessment year is independent and mere fact that the revenuedid not challenge the finding recorded in a subsequent year could notdeviate from the startling facts clinching the issue of undisclosedincome on the statement of the assessee himself which was not shown,in any manner, to be involuntary. He has relied upon judgment of thisCourt in Kanshi Ram Wadhwa v. CIT, (1982) 138 ITR 830 to theeffect that a statement surrendering the undisclosed income cannot beignored. 7.Learned counsel for the assessee supported the findingsrecorded by the Tribunal. He relied upon following judgments tosubmit that only material found during search can be the basis of blockassessment:- i)CIT v. Aggarwal Developers P Limited, (2007)163 Taxman 699 (Del.);163 Taxman 699 (Del.); ii)CIT v. Vikram A.Doshi, (2002) 256 ITR 129(Bom.);(Bom.); iii)CIT v. Vishal Aggarwal, (2005) 147 Taxman597 (Del.);597 (Del.); i)CIT v. Aggarwal Developers P Limited, (2007)163 Taxman 699 (Del.);163 Taxman 699 (Del.); ii)CIT v. Vikram A.Doshi, (2002) 256 ITR 129(Bom.);(Bom.); iii)CIT v. Vishal Aggarwal, (2005) 147 Taxman597 (Del.);597 (Del.); 8.We are of the view that the questions have to be decided infavour of the revenue and finding recorded by the Tribunal are perverseand cannot be sustained in law. 9.We proceed to deal with the questions in seriatim. Re: (i) to (iii) 10.It is undisputed that the assessee initially did not give anyexplanation regarding cash recovered and though explanation wassought to be furnished by relying on certificate from Bank, on beingconfronted with the fact that record relied upon was not genuine, theassessee filed a revised return declaring the amount to be undisclosedincome. In such circumstances, the stand of the assessee inwithdrawing from his earlier statement was not shown to be genuine.The assessee did not disclose what was the purpose of withdrawal ofsuch a huge cash amount and whether any further cheque was issuedfrom that cheque book during the period in question. Learned counselfor the assessee submitted that in statement recorded on 21.9.1995, theassessee had taken a stand that the amount found representedwithdrawal from the bank. Assuming such a statement was made aftermore than one month of the search, the fact remains that the assesseehimself gave a statement in the revised return filed on 30.4.1996 onbeing confronted with the facts found during survey on the bankpremises, falsifying the stand of the assessee. The Tribunal had nojustification whatsoever to disregard the same. Infact, no reason fordisregarding the said statement has been given by the Tribunal. Thisbeing an important material required to be taken into account andhaving been taken into account by the Assessing Officer, the Tribunalcould not have disregarded the same. If any important piece ofevidence is disregarded by a fact finding authority, the finding wouldstand vitiated and will give rise to question of law, which in the circumstances, can be held to be a substantial question of law.Judgment of this Court in Kanshi Ram Wadhwa supports the stand ofthe revenue. As regards judgments relied upon on behalf of theassessee, the principle laid down therein that block assessment has tobe based on material found during search is undisputed but in thepresent case, there is nothing to show that assessment is not based onsuch material. Accordingly, we answer questions (i) to (iii) in favour ofthe revenue and against the assessee and hold that ITAT was notjustified in deleting the addition on account of unexplained cash ofRs.45 lacs merely on the basis of order of the CIT(A) for the nextassessment year on the issue of allowability of interest in regularassessment. Re: (iv) 11. We have already noticed the findings of the Tribunal. TheTribunal held that NRI gifts were disclosed in regular return ignoringthe fact that on being unable to give valid explanation during the blockassessment, the assessee himself surrendered the amount asunexplained income. As observed earlier, this being an importantmaterial, the Tribunal could not have disregarded the same and findingrecorded without considering the effect of surrender is clearly perverseand unsustainable. The Tribunal also observed that the amountsrepresenting gifts were mentioned in the return for the earlierassessment year and did not form part of the seized material and thesame could not be treated as undisclosed income under Chapter XIVB.We are of the view that this reason is not legally tenable. The bank accounts were part of seized material and mere fact that the assesseehad disclosed the same did not deviate from the fact that income wasundisclosed in absence of the gifts being proved to be genuine whichwas further corroborated by the factum of surrender by the assesseehimself during the block assessment proceedings. The question is,accordingly answered in favour of the revenue, holding that theTribunal was not justified in holding the gifts and investments to beduly explained. Re: (v): 12. The Tribunal took into account disclosure in belated returnfor the assessment year 1995-96 for deleting the addition representingundisclosed income of the assessee by relying upon provisions ofSection 158BB(i) (c) of the Act. The scheme of the provision clearly isto take into account disclosures in returns filed prior to search or totake into account disclosures independent of the return which aresatisfactorily verifiable. Disclosure in a return filed after the searchcannot be treated as a disclosed income. This aspect has been examinedby this Court recently in ITR No.170 of 1998 (The Commissioner ofIncome Tax, Jalandhar v. Shri Ashwani Trehan) decided on8.7.2010, wherein it was observed:- “Under Section 158BB, undisclosed income is aggregateof income for the previous year falling in the block period,on the basis of evidence found in search, reduced by theincome determined on the basis of returns already filed orwhere date for filing of return had not expired, on the basisof entries made in the books of account. In other words,return filed after search was not at par with disclosedincome. The stand of the assessee that he had filed return under Section 139(4) of the Act on 25.3.1996, whichshould be taken into account could not be accepted. Thereturn filed could be taken into account only if the samewas before the date of search, as provided under Clause(b) of Section 158BB and if the return had not been filedbut the date was still available, only entries in books ofaccount could be taken into account. In view of this clearscheme of Section 158BB of the Act, the interpretationplaced by the Tribunal in taking into account the returnfiled after the search, is against the express statutoryprovision under Clause (b) of Section 158BB. It is wellsettled that the Section has to be read as a whole and ifinterpretation taken by the Tribunal is to be accepted, thesame will be against the scheme of Clause (b) of Section158BB. In M.R. Singhal v. Assistant Commissioner ofIncome Tax, [2007] 290 ITR 162 (P&H), same view wastaken and it was held that return filed after search evenbefore ‘due date’ under Section 139(4) of the Act couldnot be taken into account. The relevant observations are asunder:- “Though learned counsel for the assessee has relied upon section 139(4) of the Act which permitsthe return to be filed even after the expiry of duedate,for purposes of Section 158BB(1)(c) of theAct, the consequence of the return having not beenfiled by the due date cannot be nullified by a returnfiled under section 139(4) of the Act. Evenotherwise, section 158BB(1)(c) of the Act clearlyprovides that even where the date for filing thereturn has not expired, transactions recorded on thebasis of entries relating to income in the books ofaccount have to be taken into account. In the presentcase, no advance tax or self-assessment tax had beenpaid at the relevant time. In such a situation, the return filed under Section 139(4) of the Act couldno be taken into account.” 13. Applying the above principle to the present case, theincome declared in a belated return after the search could not betreated as undisclosed income. The view taken by the Tribunal cannot,thus, be legally sustained. 17.Accordingly, question is answered in favour of the revenueand against the assessee. 18. As a result, we allow this appeal. The impugned order ofthe Tribunal is set aside and that of the Assessing Officer is restored. (Adarsh Kumar Goel) Judge return filed under Section 139(4) of the Act couldno be taken into account.” 13. Applying the above principle to the present case, theincome declared in a belated return after the search could not betreated as undisclosed income. The view taken by the Tribunal cannot,thus, be legally sustained. 17.Accordingly, question is answered in favour of the revenueand against the assessee. 18. As a result, we allow this appeal. The impugned order ofthe Tribunal is set aside and that of the Assessing Officer is restored. (Adarsh Kumar Goel) Judge August 4, 2010‘gs’ (Ajay Kumar Mittal) Judge