D.b. Income Tax Appeal v. Sardar Singh Hoda

D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR : J U D G M E N T : D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, Udaipur Vs.Sardar Singh Hoda, Prop. K.K. Gas Distributors, Udaipur Date of Judgment :: 13.05.2013 PRESENT HON'BLE MR. JUSTICE NARENDRA KUMAR JAINHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant. Mr. Anjay Kothari, for the respondent. ---- BY THE COURT: This appeal under Section 260A of the Income Tax Act,1961 ('the Act') has been filed by the Revenue aggrieved by theorder dated 15.7.2005 passed by the Income Tax AppellateTribunal, Jodhpur Bench, Jodhpur ('Tribunal'), whereby, theappeal filed by the assessee has been partly allowed and certainadditions made vide Assessment Order dated 31.7.1998 forblock period F.Y. 1986-87 to 1996-97 have been deleted. The appeal was admitted on the following substantialquestions of law by this Court on 3.4.2006:- “(i) - Whether in the facts and circumstances ofthe case, the Tribunal was justified in law indeleting the additions made by the AssessingOfficer for the relevant assessment year fallingwithin the block period of 1986-87 to 1996-97primarily on the ground of Section 158BB is notapplicable for the purposes of making additionsunless the additions are directly referable tomaterial found during the course of search andseizure proceedings? (ii)- Whether in the facts and circumstances ofthe case, the Tribunal was justified in deleting theadditions on account of cash credit to the extentof Rs.2,04,500/- by setting aside the additionsmade by the Assessing Officer on the ground thatthe opportunity was not given though demandedto produce the so-called creditors, withoutremitting the case back to the Assessing Officerfor making the relevant enquiry into thegenuineness of such cash credit and passing freshorder after giving an opportunity to the assesseeto satisfy the Assessing Officer about itsgenuineness ?” The facts in brief are that cash amounting to Rs.5,72,000/- was captured from Chandan Singh on 19.9.1996 bythe Police Authority of Jaipur at Sindhi Camp bus stand, who hadtravelled from Udaipur to Jaipur by a Deluxe bus. In thestatement recorded by the Assistant Director of Income Tax(Investigation) IV, Jaipur, Chandan Singh stated that cash wasgiven by his employer Sardar Singh to deliver it to Girdhar JiBajoria. The cash was requisitioned under Section 132A of theAct; notice under Section 158BC/BD was served on ChandanSingh; and in response to it, he filed return of income taxdeclaring total undisclosed income for the block period atRs.2,99,440/-. During the course of assessment proceedings Chandan Singh stated that he was employee of M/s. K.K. GasDistributors, Udaipur and the cash was given to him by SardarSingh Hoda, Proprietor of the firm. He also mentioned that Rs.2,99,470/- shown as undisclosed income is in fact undisclosedcash of Sardar Singh, his employer. Sardar Singh – assessee admitted the income fromundisclosed source in his statement before the ADIT, Udaipurand notice under Section 158BC/BD were issued to him. Inresponse, the assessee returned income of Rs. 3,40,211/- forthe block period. The Assistant Commissioner of Income Tax,Investigation Circle, Udaipur by his assessment order dated31.7.1998 added Rs. 2,99,470/- as undisclosed income of theassessee based on his own admission to the total income of theassessee for the assessment year 1997-98. The AssessingOfficer ('AO') further made various additions under several headsand computed the total income including undisclosed incomeunder Section 158BB of the Act at Rs. 15,68,479/- and the totalundisclosed income for the block period at Rs. 12,28,268/-. Sardar Singh – assessee admitted the income fromundisclosed source in his statement before the ADIT, Udaipurand notice under Section 158BC/BD were issued to him. Inresponse, the assessee returned income of Rs. 3,40,211/- forthe block period. The Assistant Commissioner of Income Tax,Investigation Circle, Udaipur by his assessment order dated31.7.1998 added Rs. 2,99,470/- as undisclosed income of theassessee based on his own admission to the total income of theassessee for the assessment year 1997-98. The AssessingOfficer ('AO') further made various additions under several headsand computed the total income including undisclosed incomeunder Section 158BB of the Act at Rs. 15,68,479/- and the totalundisclosed income for the block period at Rs. 12,28,268/-. Feeling aggrieved by the assessment order dated31.7.1998, the assessee preferred an appeal before the Tribunal.The Tribunal vide order dated 15.7.2005 upheld the addition ofRs.2,99,470/- based on the admission of the assessee. Theaddition of old capital balance was set-aside by the Tribunal asthe assessee had filed return of income within due time.Regarding the rest of the additions made by the AO, the Tribunal D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda was of the opinion that in cases of search and seizure no additioncan be made de hors the material found as a result of search andas the additions were not based on the material found during thecourse of search, the said additions were deleted andconsequently, the appeal was partly allowed. It is contended by the learned counsel for the Revenue Mr.K.K. Bissa that the Tribunal has not considered and appreciatedthe provisions of Chapter XIV-B of the Act in correct perspective.It was submitted that the AO can use all the material andevidence placed before him and in his possession to computeundisclosed income by framing block assessment and the onus ofproof lies on the assessee and in the instant case, the assesseehas failed to discharge his onus and therefore, the additionsmade were quite justified and consequently, the appeal deservesto be allowed. On the other hand, it was contended by Mr. Anjay Kothari,learned counsel for the assessee that in fact, no substantialquestion of law arise for consideration in the appeal andsubmitted that the finding of the Tribunal that the AO hadestimated undisclosed income without reference to the materialin his possession was arrived at on the basis of material onrecord and by applying the principle of law correctly andtherefore, it cannot be said that any question of law arises in thepresent case. It was further submitted that under Chapter XIV-B,the AO has to assess only the undisclosed income and he cannot D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda seek to assess the income or loss of the previous years which isonly done in the normal regular assessment under the law. Itwas prayed that the appeal be dismissed. We have considered the rival submissions made at the Bar. It is settled position of law that the exercise under Section143(3) of the Act for regular assessment stands on a differentfooting in contrast to the exercise undertaken by the AO underChapter XIV-B where the AO has to assess only the undisclosedincome. While dealing with this aspect, the Bombay High Courtspeaking through Hon'ble Mr. Justice S.H. Kapadia (as HisLordships then was) in Commissioner of Income Tax v. Dr.M.K.E. Memon : (2001) 248 ITR 310 held as under: D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda seek to assess the income or loss of the previous years which isonly done in the normal regular assessment under the law. Itwas prayed that the appeal be dismissed. We have considered the rival submissions made at the Bar. It is settled position of law that the exercise under Section143(3) of the Act for regular assessment stands on a differentfooting in contrast to the exercise undertaken by the AO underChapter XIV-B where the AO has to assess only the undisclosedincome. While dealing with this aspect, the Bombay High Courtspeaking through Hon'ble Mr. Justice S.H. Kapadia (as HisLordships then was) in Commissioner of Income Tax v. Dr.M.K.E. Memon : (2001) 248 ITR 310 held as under: “In conclusion, we would also like to mention thatChapter XIV-B lays down a special procedure forassessment of search cases and provides forassessment of undisclosed income as a result of thesearch. Under section 158BB read with section 158BCof the Act, what is assessed is the undisclosed incomeof the block period and not the total income or loss ofthe previous year required to be assessed underregular assessment vide section 143(3). This exerciseunder section 143(3) for regular assessment standson a different footing in contrast to the exerciseundertaken by the Assessing Officer under ChapterXIV-B where the Assessing Officer has to assess onlythe undisclosed income. Therefore, the scope ofregular assessment is quite different from the scopeof assessment under Chapter XIV-B. The regularassessment is to ensure that the assessee had notunderstated the income or has not computedexcessive loss or has not underpaid the tax in anymanner whereas what is assessed under Chapter XIV-B is only the undisclosed income for the block periodand not the income or loss of the previous year whichis only done in the normal regular assessment undersection 143(3). In a large number of cases we findthat the above distinction is not kept in mind by theAssessing Officer. It is for this reason that we have D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda 6 spelt out the difference between the regularassessment and the block assessment under ChapterXIV-B of the Income Tax Act.” Further while dealing with the same issue, this Court inCommissioner of Income Tax v. Rajendra Prasad Gupta : (2001)248 ITR 350 (Raj.) held as under:- D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda 6 spelt out the difference between the regularassessment and the block assessment under ChapterXIV-B of the Income Tax Act.” Further while dealing with the same issue, this Court inCommissioner of Income Tax v. Rajendra Prasad Gupta : (2001)248 ITR 350 (Raj.) held as under:- “We are of the opinion that so far as the contention oflearned counsel for the appellant that the AssessingOfficer has necessary jurisdiction to resort to bestjudgment assessment in proceedings under section158BB, the correctness of it cannot be doubted.However, under the scheme of the provisions for blockassessment, it is apparent that it relates toassessment of “undisclosed income” of the assesseeexcluding the income subjected to regular assessmentin pursuance of the returned filed by the assessee forsuch period. It is also apparent from the perusal ofsection 158BB that the returns are also required to befiled in pursuance of the notice under section 158BC(a) and the assessment is to be framed on that basisin the light of material that has come into possessionof the assessing authority during the course of searchwhich is the foundation of the proceedings. That beingso, the correctness or otherwise of the returns filed inpursuance of the notice under section 158BC (a) hasto be examined with reference to the material in thepossession of the assessing authority having nexus toassessment of “undisclosed income” which is with theassessing authority, and premise of such proceedings.If the returns filed by the assessee do not accord withthe material which is already in the possession of theauthority, it can be estimated to the best judgment bythe assessing authority on the basis of the material inhis possession. However, the assessing authority isnot conferred with power to make estimation ofincome de hors the material in his possession, whilemaking regular assessment order under section158BB. It has to be borne in mind that proceedingsunder sections 158BB and 158BC are that ofundisclosed income. Therefore, the proceeding carrieswith it a presumption that returns filed in pursuance ofsuch proceedings are of undisclosed income and notnecessarily in accordance with the books of account.Its verification has to be searched outside regularbooks with reference to material that has been foundduring search. That makes it imperative to adjudicatethe return with reference to the material that hascome in the possession of the assessing authority during the course of search proceedings and on whichbasis the belief about the existence of undisclosedincome is entertained by the assessing authorityinviting invocation of sections 158BB and 158BC. Theenquiry into the correctness of such returns withreference to material so found has nexus with theobject of the special provisions, to adjudge whetherthe assessee is still honestly disclosing his incomecorrectly after incriminating material has been found inthe possession of the Revenue authority before suchreturns can be rejected and thereafter to frameassessment estimating the income liable to tax to thebest of judgment on the basis of the material that isavailable with him.” The court further held: “Having perused the assessment order, we are of theopinion that no such finding has been recorded by theAssessing Officer whether the returns filed by theassessee do not accord with facts that came to lightduring the course of search and seizure nor estimateof income made by the assessing authority appears tobe after considering that material on record. It is thesubstance and the reasoning adopted by the Tribunalthat the Assessing Officer has estimated the incomewithout reference to the material in his possessionwhich cannot be countenanced. The court further held: “Having perused the assessment order, we are of theopinion that no such finding has been recorded by theAssessing Officer whether the returns filed by theassessee do not accord with facts that came to lightduring the course of search and seizure nor estimateof income made by the assessing authority appears tobe after considering that material on record. It is thesubstance and the reasoning adopted by the Tribunalthat the Assessing Officer has estimated the incomewithout reference to the material in his possessionwhich cannot be countenanced. Thus, finding has rightly been reached by the Tribunalon the basis of the material that was on record byapplying the principle of law correctly. Such findingdoes not give rise to any substantial questions oflaw.” Further in the case of Commissioner of Income Tax v. LateManohar Lal Soni : (2009) 316 ITR 365, this Court has held thatwhere the total income for any previous year does not exceedmaximum amount not chargeable to tax, for any previous yearfalling within the block period, that income is required to bereduced from out of the aggregate income of the block periodarrived at in accordance with the provisions of Section 158BBand it cannot be said to be the undisclosed income even if no D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda 8 return is filed within the time prescribed under Section 139 asthe assessee was not under obligation to file the return. In the case of Commissioner of Income Tax v. ChandraChemoux : (2008) 298 ITR 98 (Raj.), this Court held thataddition can be made only when evidence is available as a resultof search or requisition of books of account, documents andother material, however, addition cannot be made on the basisof inferences. In the present case while the AO in its assessment orderdated 31.7.1998 dealt with the issue as if it was undertaking theassessment proceedings under Section 143(3) of the Act of theperiod 1986-87 to 1996-97 and made additions under severalheads like cash credit, disallowed commission, disallowed jobwork expenses, deposit in the Bank, investment in restaurant inthe name of Cool Station, income from the restaurant in thename of wife, disallowed salary in the name of relative, incomefrom VAN and salary by rejecting the explanations submitted bythe assessee. The Tribunal on the other hand, after rejecting the plea ofthe assessee regarding the amount of undisclosed cash asadmitted by him to the tune of Rs. 2,99,740/- came to theconclusion that the rest of the additions made by the AO doesnot fall within the parameters of Chapter-XIV-B relating to theundisclosed income as the said additions were made de hors thematerial found as a result of search. D.B. INCOME TAX APPEAL NO.31/2006Commissioner of Income Tax, UdaipurVs. Sardar Singh Hoda Admittedly, except for the admission of the assessee quathe undisclosed cash of Rs. 2,99,740/-, the AO was not inpossession of any evidence found as a result of search orrequisition of book of accounts or other documents so as tomake the additions as made by him in the assessment orderdated 31.7.1998. The reliance placed by the Revenue in Rajendra KumarLahoty v. Deputy Commissioner of Income Tax : (2003) 132Taxman 877 (Raj.) has no application to the present case as thesaid case turned on its own facts and no principle of law hasbeen laid down in the said judgment. From what has been noticed above, the Tribunal on thebasis of material on record and by applying the principle of lawcorrectly has rightly reached a finding, which does not call forany interference by this court. Accordingly, the questions are answered against theRevenue and consequently, as the appeal has no substance, thesame is, therefore, dismissed. No costs. (ARUN BHANSALI),J. (NARENDRA KUMAR JAIN),J. Rm/