Commissioner Of Income Tax, Chennai v. S. Ajit Kumar

710 SUPREME COURT REPORTS [2018] 5 S.C.R. COMMISSIONER OF INCOME TAX, CHENNAI S. AJIT KUMAR (Civil Appeal No. 10164 of 2010) MAY 02, 2018 [R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.] Income Tax Act, 1961 – s. 158BB, 158 BH and 133A –Undisclosed income of the block period – Computation of – SearchCconducted in the premises of assessee by the Income Tax Department– Concurrently survey conducted in the premises of the builder whoconstructed the house of the assessee – Cash payment of Rs 95.16lakhs found in the course of survey in the premises of the builder –If could be used in Block Assessment of the assessee – Held: It canDbe added under the head of the undisclosed income of the assesseein block assessment – Assessing Officer was justified in taking theadverse material collected or found during the survey or any othermethod while making the Block Assessment – Thus, the orders passedby the Assessing Officer restored. EAllowing the appeals, the Court HELD: 1.1 On a perusal of Section 158BB of the IncomeTax Act, 1961, it is evident that for the purpose of calculating theundisclosed income of the block period, it can be calculated onlyon the basis of evidence found as a result of search or requisitionFof books of accounts or other documents and such other materialsor information as are available with the Assessing Officer andrelatable to such evidence. Section 158BB has prescribed theboundary which has to be followed. No departure from thisprovision is allowed otherwise it may cause prejudice to theGassessee. It is the cannon of tax law that it should be interpretedstrictly. [Para 13] [717-A-B] 1.2 The power of survey has been provided under Section133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making theBlock Assessment in respect of an assessee under Section 158BBread with Section 158 BH of the IT Act. The same would fallunder the words “and such other materials or information as areavailable with the Assessing Officer and relatable to suchevidence” occurring in Section158BB of the Act. In the presentcase, the Assessing Officer was justified in taking the adversematerial collected or found during the survey or any other methodwhile making the Block Assessment. The impugned orders areset aside and the orders passed by the Assessing Officer makingthe Block Assessment are restored. [Paras 15, 17] [718-C-D, F] Assistant Commissioner of Income Tax and Another v.Hotel Blue Moon (2010) 3 SCC 259 ; Commissioner ofIncome Tax v. G.K. Senniappan 284 ITR 220 ;Commissioner of Income Tax v. S. Ajit Kumar (2008)300 ITR 152 (Mad.) ; Commissioner of Income Tax v.N.K. Laminates Pvt. Ltd. (2014) 365 ITR 211 (All.) ;Commissioner of Income Tax v. Bimal Auto Agency(2009) 314 ITR 191 (Gauhati) ; Commissioner ofIncome Tax v. Khushlal Chand Nirmal Kumar(2003) 263 ITR 77 (MP) ; Commissioner of IncomeTax v. Dr. Rattan Kumar Singh (2013) 357 ITR 35(All.) ; Commissioner of Income Tax, Chennai v. S. V.Sreenivasan (2017) SCC Online 17211 (Mad.) ;Commissioner of Income Tax v. Pinaki Misra (2017)392 ITR 347 (Delhi) ; Commissioner of Income Tax v.R.M.L. Mehrotra (2010) 320 ITR 403 (All.) ; SreeMeenakshi Mills Ltd. v. Commissioner of Income Tax,Madras (1957) 21 ITR 28 (S.C.) ; Commissioner ofIncome Tax v. P. V. Kalyanasundaram (2007) 294 ITR49 (S.C.) ; Commissioner of Income Tax v. Smt. AnitaChouhan (2008) 296 ITR 691 (M.P.) ; Commissionerof Income Tax, Punjab v. Indian Wollen Textiles Mills(1964) 51 ITR 291 – referred to. Case Law Reference (2010) 3 SCC 259 referred to 712SUPREME COURT REPORTS ECIVIL APPELLATE JURISDICTION: Civil Appeal No. 10164of 2010. From the Judgment and Order dated 22.11.2006 of the High Courtof Judicature at Madras in Tax Case (Appeal) No. 2620 of 2006 WITH [2018]5 S.C.R. 710 ਮਈ 02, 2018 Civil Appeal No.10165 of 2010, Civil Appeal No. 10917 of 2013,Civil Appeal Nos.4449 and 5255 of 2015. GK. Radhakrishnan, Yashank Adhyaru, R.V. Easwar, Sr. Advs.,Rupesh Kumar, Shekhar Vyas, Mrs. Anil Katiyar, B.V. Balaram Das,K.V. Mohan, R.K. Raghavan, K.V. Balakrishnan, Kunal Cheema, ApoorvShukla, Rubal Bansal, Ranjit B. Raut, Mrs. Bina Gupta, Advs. for theappearing parties. The Judgment of the Court was delivered by R. K. AGRAWAL, J. 1. This appeal has been filed against theimpugned judgment and order dated 22.11.2006 passed by the High Courtof Judicature at Madras in Tax Case (Appeal) No. 2620 of 2006 wherebythe Division Bench dismissed the appeal filed by the appellant hereinwhile upholding the decision passed by the Income Tax Appellate Tribunal(for short “the Tribunal”) dated 28.04.2006. Along with this appeal, otherappeals are also tagged. Since the moot question in all these appeals issame, all these appeals would stand disposed off through this commonjudgment. Brief facts:- Civil Appeal No. 10164 of 2010 2. In order to appreciate the facts of the present case in theappropriate manner, purpose would be served if we mention the facts ina summarized way which is as under:- a) The appellant herein is the Revenue whereas the respondent isthe assessee. b) A search was conducted by the officers of the Income TaxDepartment in the premises of the assessee on 17.07.2002 which wasconcluded on 21.08.2002. On the same date, there was a survey in thepremises of Elegant Constructions and Interiors Ltd. (hereinafter referredto as ‘M/s. ECIL’) - the builder and interior decorator who constructedand decorated the house of the assessee at Valmiki Nagar. c) Pursuant to the same, the fact that the assessee having engagedthe above contractor for construction of the house came out. At thesame time, from the survey in the builder’s premises, the fact of theassessee having paid Rs 95,16,000/- to M/s ECIL in cash was revealedwhich was not accounted for. d) The Assessing Officer, vide order dated 31.08.2004, after havingregard to the facts and circumstances of the case, completed the blockassessment and, inter alia, held that the said amount is liable to tax asundisclosed income of the block period. e) Being aggrieved with the order dated 31.08.2004, the assesseefiled an appeal before the Commissioner of Income Tax (Appeals).Learned CIT (Appeals), vide order dated 15.02.2005, held that it was Adue to the search action that the Department had found that the assesseehad engaged the services of M/s. ECIL. Hence, the order of blockassessment was upheld. f) Being dissatisfied, the assessee brought the matter before theTribunal by way of an appeal. The Tribunal, vide order dated 28.04.2006,Bset aside the decisions of the Assessing Officer and learned CIT (Appeals)and allowed the appeal. g) Being aggrieved, the Revenue filed an appeal before the HighCourt. The High Court, vide order dated 22.11.2006, dismissed the appeal. 3. Consequently, the Revenue has filed this instant appeal beforeCthis Court. 4. Heard the arguments advanced by learned senior counsel forthe parties and perused the relevant records of the case placed before DPoint(s) for consideration:- 5. The short point for consideration which arises in this appeal isas to whether in the light of present facts and circumstances of theinstant case, the material found in the course of survey in the premisesof the builder could be used in Block Assessment of the assessee? ERival contentions: 6. At the outset, learned senior counsel for the Revenue contendedthat the High Court failed to consider that the information gathered as aresult of search is not the details of appointment of interior decoratorrather it is information regarding the cash payments made over and aboveFthe cheques payments and not accounted by the assessee. Further, itwas also contended that it is the standard practice in the Departmentthat when a search takes place in the case of an assessee, many relatedbusiness premises are simultaneously covered under survey. Learnedsenior counsel further contended that though it is called a survey, it isvery much part of the search process and the inquiry and investigation isGone process. This is to be distinguished from the surveys which arestand-alone surveys, totally unconnected to any search. In order tosubstantiate his claim, learned senior counsel has referred to a decisionof this Court in Assistant Commissioner of Income Tax and Anothervs. Hotel Blue Moon (2010) 3 SCC 259 and contended that the impugnedHdecision of the High Court is liable to be set aside. 7. Per contra, it is submitted by learned senior counsel for theassessee that the High Court rightly dismissed the appeal of the appellantafter placing reliance on the decision of the Madras High Court inCommissioner of Income Tax vs. G.K. Senniappan 284 ITR 220. Itwas also submitted that the fact of cash payment found in surveyconducted at the premises of M/s ECIL does not fall within the ambit ofBlock Assessment. Learned senior Counsel has relied upon the followingdecisions, viz., Commissioner of Income Tax vs. S. Ajit Kumar (2008)300 ITR 152 (Mad.), Commissioner of Income Tax vs. N.K. LaminatesPvt. Ltd. (2014) 365 ITR 211 (All.), Commissioner of Income Tax vs.Bimal Auto Agency (2009) 314 ITR 191 (Gauhati), Commissioner ofIncome Tax vs. Khushlal Chand Nirmal Kumar (2003) 263 ITR 77(MP), Commissioner of Income Tax vs. Dr. Rattan Kumar Singh(2013) 357 ITR 35 (All.), Commissioner of Income Tax, Chennai vs.S. V. Sreenivasan (2017) SCC Online 17211 (Mad.), Commissioner ofIncome Tax vs. Pinaki Misra (2017) 392 ITR 347 (Delhi),Commissioner of Income Tax vs. R.M.L. Mehrotra (2010) 320 ITR403 (All.), Sree Meenakshi Mills Ltd. vs. Commissioner of IncomeTax, Madras (1957) 21 ITR 28 (S.C.), Commissioner of Income Taxvs. P.V. Kalyanasundaram (2007) 294 ITR 49 (S.C.), Commissionerof Income Tax vs. Smt. Anita Chouhan (2008) 296 ITR 691 (M.P.)and Commissioner of Income Tax, Punjab vs. Indian Wollen TextilesMills (1964) 51 ITR 291. Learned senior counsel finally submitted thatin view of the above decisions, this appeal deserves to be dismissed atthe threshold. Discussion:- 8.In the present case, the period for Block Assessment is01.04.1996 to 17.07.2002. Section 153A of the Income Tax Act, 1961(for brevity “the IT Act”) provides the procedure for completion ofassessment where a search is initiated under Section 132 of the IT Actor books of account or other documents or any asset are requisitionedunder Section 132A of the IT Act. 9. It is a cardinal principle of law that in order to add any incomein the block assessment, evidence of such must be found in the courseof the search under Section 132 of the IT Act or in any proceedingssimultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are havingtransaction/dealings with such assessee. In the present case, the moot Aquestion is whether the fact of cash payment of Rs 95.16 lakhs can beadded under the head of the undisclosed income of the assessee in blockassessment. 10. In the instant case, the office and residential premises of theassessee searched on 17.07.2002 and finally concluded on 21.08.2002.BDuring the course of search, certain evidence were found which showedthat the assessee had indulged in understatement of his real incomerelating to the block period from 01.04.1996 to 17.07.2002. Consequently,a notice dated 25.02.2003, under Section 158BC of the IT Act, wasissued to the assessee and he was asked to file block assessment. Inreply to such notice, the assessee filed return on 11.08.2003, admittingCthe undisclosed income as “NIL”. 11. In the present case, it is admitted position that the cost ofinvestment was disclosed to the Revenue in the course of return filed bythe assessee. The assessee also disclosed the detail of transactionbetween the assessee and M/s ECIL in the assessment year 2001-2002.DHowever, he had not disclosed the payment of Rs. 95,16,000/- in cashmade to M/s. ECIL. 12. The method of calculating the undisclosed income of the blockperiod is provided under Section 158BB of the IT Act. It would beappropriate to re-produce the relevant part of Sections 158BB and 158EBH of the IT Act which is as follows: “158BB. Computation of undisclosed income of the blockperiod.-(1) The undisclosed income of the block period shall bethe aggregate of the total income of the previous year failing withinthe block period computed, in accordance with the provisions ofFthis Act,on the basis of evidence found as a result of search orrequisition of books of account or other documents and suchother materials or information as are available with theAssessing Officer and relatable to such evidence, as reducedby the aggregate of the total income , or, as the case may be, asGincreased by the aggregate of the losses of such previous yeardetermined…… 158BH. Application of other provisions of this Act – Saveas otherwise provided in this Chapter, all other provisions of thisAct shall apply to assessment made under this Chapter.” (Emphasis supplied by us) 13. On a perusal of the above provision, it is evident that for thepurpose of calculating the undisclosed income of the block period, it canbe calculated only on the basis of evidence found as a result of search orrequisition of books of accounts or other documents and such othermaterials or information as are available with the Assessing Officer andrelatable to such evidence. Section 158BB has prescribed the boundarywhich has to be followed. No departure from this provision is allowedotherwise it may cause prejudice to the assessee. Needless to say that itis the cannon of tax law that it should be interpreted strictly. 14. However, Section 158BH of the IT Act has made all otherprovisions of the IT Act applicable to assessments made under ChapterXIVB except otherwise provided under this Chapter. Chapter XIV Bof the IT Act, which relates to Block Assessment, came up forconsideration before this Court in Hotel Blue Moon (supra) wherein ithas been held as under: “18. Chapter XIV-B provides for an assessment of the undisclosedincome unearthed as a result of search without affecting the regularassessment made or to be made. Search is the sine qua non forthe block assessment. The special provisions are devised tooperate in the distinct field of undisclosed income and are clearlyin addition to the regular assessments covering the previous yearsfalling in the block period. The special procedure of Chap