Commissioner Of Income-Tax, Chennai v. S.ajit Kumar

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 22.11.2006 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.2620 of 2006 Commissioner of Income-tax,Chennai. ..AppellantVs S.Ajit Kumar ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Chennai, 'B' Benchdated 28.04.2006 in I.T.(S.S.)A. No.53/Mds/2005 for the blockassessment period from 01.04.1996 to 17.07.2002 and order dated15.2.2005 in ITA 206/2004-2005 on the file of the Commissioner ofIncome Tax (Appeals)I Chennai-34 agaisnt the Assessment order dated31.8.2004 in PA No.GIR.No.ACDPK 0418K/701-A on the file of theAssistant Commissioner of Income Tax Central Circle IV, (3) Chennai. For Appellant : Mr.J.Narayanaswamy, Standing Counsel for Income-tax DepartmentJUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) This appeal is filed by the Revenue under Section 260A of theIncome Tax Act, 1961 against the order of the Income-tax AppellateTribunal, Chennai, 'B' Bench dated 28.04.2006 in I.T.(S.S.)A.No.53/Mds/2005, raising the following substantial questions of law:1. Whether on the facts and circumstances of thecase, the Tribunal was right in holding that thematerial found in the course of survey in thepremises of the builder could not be used in theblock assessment of the assessee?2. Whether on the facts and circumstances of thecase, the Tribunal was right in holding only ifevidence of cash payment to the builder had beenfound at the time of search, could the proof of https://hcservices.ecourts.gov.in/hcservices/ the same found at the time of survey in thebuilder's premises be used, inspite of the factthat other details of employing that particularbuilder were found at the time of search? 2.The brief facts leading to the above questions of law areas under: https://hcservices.ecourts.gov.in/hcservices/ the same found at the time of survey in thebuilder's premises be used, inspite of the factthat other details of employing that particularbuilder were found at the time of search? 2.The brief facts leading to the above questions of law areas under: The assessee is a Cine Actor. The office and residentialpremises of the assessee were searched on 17.07.2002 and the searchwas concluded on 21.08.2002. In the course of the search, evidenceswere noticed that the assessee had indulged in understatement of hisreal income relating to the block period 01.04.1996 to 17.07.2002. Anotice dated 25.02.2003, under Section 158BC of the Income-tax Act(hereinafter referred to as the "Act"), was issued to the assesseeand in response to the same, the assessee furnished the Return ofincome on 11.08.2003, admitting the undisclosed income as "Nil". Onthe date of search, there was a survey in the premises of M/s.ElegantConstructions and Interiors Ltd. ("Elegant Constructions" in short),the builder and interior decorator, who constructed and decorated theassessee's house at Seaward Road, Valmiki Nagar, Thiruvanmiyur. Itwas found that the assessee paid a sum of Rs.95.16 lakhs in cash andthe same was not accounted. The Assessing Officer, completed theorder making an addition of Rs.95,16,320/- and completed the blockassessment, inter alia, bringing the said amount to tax asundisclosed income of the block period. Aggrieved by the order, theassessee filed an appeal to the Commissioner of Income-tax (Appeals)and contended that the materials found in the course of survey couldnot be utilised for computing the income of the block period. TheC.I.T.(A) held that it was due to the search action, the Departmenthad found that the assessee had engaged the services of M/s.ElegantConstructions, the builder and decorator and hence the same isdirectly related to the information obtained in the surveyproceedings, and confirmed the order of assessment and dismissed theappeal. Aggrieved by the order of C.I.T.(A), the assessee filed anappeal to the Income-tax Appellate Tribunal (hereinafter referred toas the "Tribunal"). The Tribunal was of the view that information ofmaterials found in the survey operation of the premises ofM/s.Elegant Constructions, was not related to any material foundduring the course of search operation and hence the same cannot be abasis for making any addition in the block assessment. 3.Learned Standing Counsel appearing for the Revenuesubmitted that the assessee made cash payment to M/s.ElegantConstructions to the extent of Rs.95,16,320/-. In the course of thesearch operation in the residential and official premises of theassessee, a survey was conducted under Section 133A of the Act, inthe business premises of M/s.Elegant Constructions. In the course ofsurvey operation, it was found that M/s.Elegant Constructions hadundertaken construction of interior decoration work and receivedpayment in cash over and above the cheque payment. The assessee hadalso made the cheque payment. Both the cash and cheque payments wererecorded in the books of M/s.Elegant Constructions. However, the https://hcservices.ecourts.gov.in/hcservices/ accounts of the assessee showed only the cheque payment. Acomparison of the accounts of the assessee, as compared with thebooks of M/s.Elegant Constructions with copies of ledger folio of theassessee, would show that all payments made by the assessee by way ofcheque have been accounted for in the books of M/s.ElegantConstructions. However, none of the cash payments were entered inthe books of account of the assessee. Therefore, on the basis ofthe materials found in the course of survey and the statementrecorded from the Director of M/s.Elegant Constructions, an additionwas made to the extent of Rs.95,16,320/- and the same is inaccordance with law. https://hcservices.ecourts.gov.in/hcservices/ accounts of the assessee showed only the cheque payment. Acomparison of the accounts of the assessee, as compared with thebooks of M/s.Elegant Constructions with copies of ledger folio of theassessee, would show that all payments made by the assessee by way ofcheque have been accounted for in the books of M/s.ElegantConstructions. However, none of the cash payments were entered inthe books of account of the assessee. Therefore, on the basis ofthe materials found in the course of survey and the statementrecorded from the Director of M/s.Elegant Constructions, an additionwas made to the extent of Rs.95,16,320/- and the same is inaccordance with law. 4.Heard the counsel. Admittedly, there was a search on17.07.2002. The assessee constructed a residential bungalow in whichthe construction and interior decoration was done by one M/s.ElegantConstructions. The cost of investment was disclosed to the Revenue inthe course of regular Return filed by the assessee. The transactionbetween the assessee and the said M/s.Elegant Constructions was alsodisclosed for the assessment year 2001-2002. The investment inSeaward Road, Valmiki Nagar, Thiruvanmiyur bungalow was alsodisclosed to the Revenue in the regular Return. Therefore, it isclear that the construction of residential bungalow and interiordecoration by engaging M/s.Elegant Constructions, was within theknowledge of the Department as on the date of search. In the courseof search operation, a survey was also conducted under Section 133Aof the Act in the official premises of M/s.Elegant Constructions.In the course of survey operation, the Revenue found that theassessee had paid cash over and above the amount paid by cheque. Itis an indisputable fact that the cost of construction and interiordecoration through M/s.Elegant Constructions, was known to theDepartment even before the date of search. Admittedly, no materialwas found during the course of search operation in respect of amountsaid to be paid in cash over and above the cheque payment. Hence, theTribunal correctly come to the conclusion that the information ormaterial found during the course of survey operation at the premisesof M/s.Elegant Constructions, were not relatable to any materialfound during the course of search operation. Therefore, the Tribunalis right in its view that material or information found at thepremises of M/s.Elegant Constructions, in the course of surveyproceeding, could not be a basis for making any addition in the blockassessment. The block assessment provides for specific methods ofcomputation and the Revenue are bound to follow the statutoryprocedures provided under Section 158BB of the Act. The Tribunalcorrectly followed the principles enunciated by the judgment of thisCourt, in the case of Commissioner of Income-tax Vs. G.K.Senniappanreported in 284 ITR 220. The Court considered the scope of Sections133A and 158BB of the Act and held as follows:"Section 158BB occurs in Chapter XIV-B,which provides for special procedure forassessment of search cases. The computation ofundisclosed income of the block period iscontemplated under section 158BB. As per the section, the undisclosed income of the blockperiod should be the aggregate of the totalincome of the previous years falling within theblock period computed in accordance with theprovisions of this Act, on the basis of theevidence found as a result of search orrequisition of books of account or otherdocuments and such other materials or informationas are available with the Assessing Officer andrelatable to such evidence, as reduced by theaggregate of the total income, or as the case maybe, as increased by the aggregate of the lossesof such previous years. section, the undisclosed income of the blockperiod should be the aggregate of the totalincome of the previous years falling within theblock period computed in accordance with theprovisions of this Act, on the basis of theevidence found as a result of search orrequisition of books of account or otherdocuments and such other materials or informationas are available with the Assessing Officer andrelatable to such evidence, as reduced by theaggregate of the total income, or as the case maybe, as increased by the aggregate of the lossesof such previous years. A mere reading of the above provisionclearly indicates that the sentence "such othermaterials or information as are available withthe Assessing Officer" cannot be bisected ortaken in isolation for the purpose ofcomputation. Such other materials or informationas are available with the Assessing Officer,should as per the section relatable to suchevidence. The word "such" used as a prefix tothe word "evidence" assumes much significance, inthis provision, as it indicates only the evidencefound, as a result of search or requisition ofbooks of account or other documents, at the timeof search. Any other material cannot form basisfor computation of undisclosed income of theblock period. Hence, we are of the view that theCommissioner as well as the Tribunal have theissue in accordance with the statutoryprovisions, and requires no interference. Theappeal is accordingly dismissed."Applying the above ratio, we find there is no error or legalinfirmity in the order of the Tribunal and the reasons given by theTribunal are based on relevant materials and evidence. 5.In view of the foregoing reasons, we are of the view thatthe order of the Tribunal is in confirmity with law and hence, nosubstantial questions of law arise for consideration of this Court,so as to warrant interference. Accordingly, the tax case isdismissed. No costs. Sd/-Asst. Registrar. /true copy/ km To 1. The Assistant Registrar,The Income Tax Appellate Tribunal,Madras B Bench, III Floor, Rajaji Bhavan,Besant Nagar, Chennai. 2. The Commissioner of Income Tax (Appeals)I,Chennai-34. 3. The Assistant Commissioner of Income Tax,Central Circle IV (3) Chennai.4. The Commissioner of Income Tax,Chennai.Tax Case (Appeal) No.2620 of 2006SSV (CO)kk 12/12