Ita/417/2010 Of The Commissioner Of Income Tax, Calicut v. M.n.kunhimohammed, Meduvil Nalakath Hous

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 17TH DAY OF JANUARY 2012/27TH POUSHA 1933 I.T.A.No.417 of 2010 (AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH IN I.T. (S&S) A.NO.60/COCH/2004 DATED 09.07.2010; BLOCK ASSESSMENT YEAR 1989-90 TO 1999-2000). --- APPELLANT/RESPONDENT:- ----------------------------------------- THE COMMISSIONER OF INCOME TAX, KOZHIKODE. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.R.MENONSRI.JOSE JOSEPH. STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) RESPONDENT/APPELLANT:- ------------------------ M.N.KUNHIMOHAMMED, MEDUVIL NALAKATH HOUSE, K.K.ROAD, TIRURANGADI, MALAPPURAM-676 306. BY ADV.SRI.T.N.SEETHARAMAN (SENIOR ADVOCATE) & SRI.S.ARUN RAJ. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 09-01-2012, THE COURT ON 17-01-2012 DELIVERED THE FOLLOWING:- APPENDIX APPELLANT'S ANNEXURES:- ----------------------------------------- ANNEXURE-A COPY OF ASST. ORDER DATED 24.10.2000. ANNEXURE-BCOPY OF CIT (A)'S ORDER DATED 08.03.2004. ANNEXURE-CCOPY OF THE ITAT'S ORDER DATED 9.7.2010.ANNEXURE-DTRUE COPY OF AGREEMENT INVENTORISED AS ITEM BJA-7.ANNEXURE-DTRUE COPY OF AGREEMENT INVENTORISED AS ITEM BJA-7. ANNEXURE-ETRUE COPY OF THE HIGH COURT JUDGMENT INTHE CASE OF M/S.HOTEL MERIYA, PALA IN ITA NO.551 OF 2009 DATED 26.5.2010.THE CASE OF M/S.HOTEL MERIYA, PALA IN ITA NO.551 OF 2009 DATED 26.5.2010. ANNEXURE-FTRUE COPY OF STATEMENT GIVEN BY THE ASSESSEEBEFORE THE ASSESSING OFFICER ON 11.10.2000.BEFORE THE ASSESSING OFFICER ON 11.10.2000. ANNEXURE-GTRUE COPY OF THE SWORN STATEMENT RECORDEDFROM THE PETITIONER DATED 22.10.1998.FROM THE PETITIONER DATED 22.10.1998. RESPONDENT'S ANNEXURES:- --------------------------------------------NIL. - true copy - C.N.Ramachandran Nair & K.Vinod Chandran, JJ. --------------------------------------- --------------------------------------- Dated this, the 17[th] day of January, 2012 JUDGMENT K.Vinod Chandran,J. The Revenue is in appeal from the order of the Tribunalchallenging the deletion of certain additions made by the assessingofficer and confirmed by the first appellate authority in respect of theblock assessment made against the assessee/respondent for theperiod 1989-90 to 1999-2000. 2. The brief facts leading to the above appeal necessaryfor the disposal of the same are as hereunder: 3. The residential premises of the assessee was searched under Section 132 of the Income Tax Act (for short “theAct”) on 22.10.1998 and notice under Section 158BC was issued.The notice being not complied with, subsequent notices were issuedand ultimately the assessee filed return in From No.2B declaring atotal undisclosed income of `.11,10,000/-. Pursuant to a notice underSection 143(2) dated 24.4.2000, the assessee also furnished cashflow statement for the block assessment years. The assessing officerverified the seized materials, written explanations, cash flowstatements furnished and statements recorded and made a number 2. The brief facts leading to the above appeal necessaryfor the disposal of the same are as hereunder: 3. The residential premises of the assessee was searched under Section 132 of the Income Tax Act (for short “theAct”) on 22.10.1998 and notice under Section 158BC was issued.The notice being not complied with, subsequent notices were issuedand ultimately the assessee filed return in From No.2B declaring atotal undisclosed income of `.11,10,000/-. Pursuant to a notice underSection 143(2) dated 24.4.2000, the assessee also furnished cashflow statement for the block assessment years. The assessing officerverified the seized materials, written explanations, cash flowstatements furnished and statements recorded and made a number of additions in the respective years deeming the same to be theundisclosed income of the assessee. With respect to 4 properties,registered sale deeds were seized on search and the assesseehaving disclosed only `.35,550/- being the stamp paper anddocument charges, the total consideration of `.3,30,000/- wasbrought to tax as undisclosed income in the block assessment years1993-94. Along with the same materials, another document seized asNo.BJA-4, was relied on to make a further addition of `.15,65,563/-with respect to the purchase of various properties. Thus, an amountof `.18,95,563/- was brought to tax in the relevant assessment yearbeing the amounts revealed in the four title deeds as also purchase ofvarious other properties as allegedly revealed from BJA-4. An amountof `.20 lakhs, equivalent to 2 lakh Riyals, was brought to tax in theblock assessment year 1997-98 relying on the statement underSection 132(4), an agreement of the year 1996 and certain diaryentries. On the basis of the diary entries, a further amount of`.1,60,000/- was also brought to tax in the same year as rentreceived. Further, relying on the statement of the assessee anamount of `.50,000/- per year was brought to tax for the years1991-92, 1992-93 and 1993-94 as brokerage received. An amount of`.6,28,000/- was also brought to tax as personal expenses estimated for assessment years 1989-90 to 1999-2000; being the amount overand above that disclosed by the assessee for these years. One otherdocument of S.R.O., Malappuram, in the name of the wife andchildren of the assessee, showing a value of `.3,92,000/- was alsobrought to tax for the assessment year 1997-98. The above six itemsof additions were the bone of contention in the instant appeal filed bythe Revenue. As noticed earlier, the first appellate authority hadconfirmed all the above additions and the Tribunal deleted the same. 4. The Revenue would, in the above appeal, contend thatthe said additions made relying on the admissions made underSection 132(4) ought to have been sustained on the principles laiddown in the judgment rendered by a Division Bench of this Court inCIT v. Hotel Meriya [(2011) 332 ITR 537]. 5. Before considering the question of admissions madeunder Section 132(4), we would first consider the addition made withrespect to the value disclosed in registered sale deeds seized onsearch. The addition of `.3,30,000/- was made with respect to fourdocuments, bearing Nos.6757, 6758, 6759 and 6760 of 1992. Theassessee having disclosed only the amount incurred for stamp paperand document charges contended that the payments with respect tothe said properties though were made, was returned since 4. The Revenue would, in the above appeal, contend thatthe said additions made relying on the admissions made underSection 132(4) ought to have been sustained on the principles laiddown in the judgment rendered by a Division Bench of this Court inCIT v. Hotel Meriya [(2011) 332 ITR 537]. 5. Before considering the question of admissions madeunder Section 132(4), we would first consider the addition made withrespect to the value disclosed in registered sale deeds seized onsearch. The addition of `.3,30,000/- was made with respect to fourdocuments, bearing Nos.6757, 6758, 6759 and 6760 of 1992. Theassessee having disclosed only the amount incurred for stamp paperand document charges contended that the payments with respect tothe said properties though were made, was returned since possession could not be taken over due to pending litigationregarding the ownership of the property. The assessing officer as wellas the first appellate authority rejected the said contention of theassessee. The Tribunal, however, relying on confirmation letters fromthe vendors of the property, held that there was a dispute on thequestion of possession of the erstwhile properties and there was noactual handing over of possession of the property despite executionof the sale deed. The Tribunal proceeded on the premise that sincethe possession was not handed over, the assessee had to pursuelegal remedies. On such reasoning, the Tribunal categorically foundthat the possession was not handed over and hence the explanationof the assessee is acceptable and deleted the addition made by theassessing officer, as confirmed by the first appellate authority. 6. We are unable to understand how the handing over ofpossession of property is relevant in treating the income asundisclosed income. The assessing officer has adopted the value asshown in the title deed for the purpose of computing the undisclosedincome and the assessee has admitted to paying the same. Thecontention of the assessee was that the said amounts were returnedby the vendors. Admittedly, the said amounts were not reflected in thecash flow statements. The assessee having categorically admitted to the payment, those amounts definitely constitute “undisclosedincome”, as no other source is revealed. With respect to the findingregarding legal remedies availed of by the assessee, the learnedcounsel for the respondent would produce before us an injunctionorder issued by the Sub Court, Thrissur on the application ofstrangers against the daughters of the assessee. The suit is seen tobe of the year 1993. But however to a specific query made by us, thelearned counsel for the assessee was not able to apprise us of thefate of the said suit. The addition of `.4,00,000/- made with respect tothe investment in property at Tirurangadi in the name of theassessee's wife and children was also deleted by the Tribunal onsimilar findings of possession not being handed over. The Tribunalhas proceeded on a totally wrong premise and has found that there isno consideration passed, despite clear recitals in the documents all ofwhich are registered documents. The counsel for the assessee alsowould fairly concede that the said additions made on the basis of therecitals in registered documents cannot be contested by him inappeal. In such circumstances, on the findings rendered above asalso the concession made by the learned counsel for the assessee,the deletion of `.3,30,000/- and `.4,00,000/- on the basis of theregistered sale deeds is set aside and the assessing officer's order is restored to that extent. 7. Despite the concession made by the learned counselfor the assessee, we are constrained to specifically enter a findingwith respect to the said additions and reverse the order of theTribunal, since the findings of the Tribunal disbelieving the recitals inregistered deeds on the mere assertion of the assessee without anymaterial was patently irregular. restored to that extent. 7. Despite the concession made by the learned counselfor the assessee, we are constrained to specifically enter a findingwith respect to the said additions and reverse the order of theTribunal, since the findings of the Tribunal disbelieving the recitals inregistered deeds on the mere assertion of the assessee without anymaterial was patently irregular. 8. The next addition, the deletion of which is challengedby the Revenue, is with respect to an amount of `.15,65,563/- madeby the assessing officer for the block assessment year 1993-94 alongwith `.3,30,000/-. On a reading of the assessment order, specificallyparagraphs 2 and 3, the assessing officer details the transaction and deeds with respect to `.3,30,000/- in paragraph 2 and whilediscussing the contentions of the assessee in paragraph 3, statesthat the seized material inventory item BJA-4 reveals purchase ofvarious properties including those covered by the title deeds andmakes a total addition of `.18,95,653/-. Reducing the amount of`.3,30,000/- from the said total, what remains is `.15,65,563/-. Thesaid addition as is discernible from the assessment order is based ona document listing out certain accounts regarding the purchase of aproperty for the brother of the assessee. The assessing officer does not specifically state as to which figure or property the addition relatedto, nor is anything discernible from the first appellate authority's order.The first appellate authority, in fact, notices that the additions madeby the assessing officer and the figures in BJA-4 does not tally. Theseized document, according to the first appellate authority, representspayment of amounts on behalf of the assessee's brother regardingjoint purchase of the property, the investment of which has beendisclosed by the assessee at `.20,50,000/- for the financial year1993-94 in the cash flow statement. The non-availability of anymaterial regarding the said addition and the vagueness of thediscussion made by the assessing officer dissuade us from interferingwith the order of the Tribunal regarding the deletion of the saidaddition. 9. What remains to be considered is the questionregarding the evidentiary value of the statement made under Section132(4) by the assessee; for making additions. The addition of `.20lakhs and `.1,60,000/- for the block assessment year 1997-98,`.1,50,000/- being brokerage income for 1991-92, 1992-93 and1993-94 and personal expenses estimated at `.6,28,000/- are alladditions, which were made on the basis of statement recorded underSection 132(4). A Division Bench of this Court in C.I.T. v. Hotel Meriya [(2011) 332 I.T.R. 537] considered the scope of a statementrecorded under Section 132(4) and found that such statementrecorded by the officer as well as the documents seized would comewithin the purview of evidence under Section 158(BB) of the IncomeTax Act read with Section 3 of the Evidence Act and Section 131 ofthe Income Tax Act. Based on the above finding, it was also held thatsuch evidence would be admissible for the purpose of blockassessments too. The explanation to Section 132(4) of the IncomeTax Act was also noticed by the Division Bench to further emphasisethat the evidence so collected would be relevant in all purposesconnected with any proceedings of the Income Tax Act. Meriya [(2011) 332 I.T.R. 537] considered the scope of a statementrecorded under Section 132(4) and found that such statementrecorded by the officer as well as the documents seized would comewithin the purview of evidence under Section 158(BB) of the IncomeTax Act read with Section 3 of the Evidence Act and Section 131 ofthe Income Tax Act. Based on the above finding, it was also held thatsuch evidence would be admissible for the purpose of blockassessments too. The explanation to Section 132(4) of the IncomeTax Act was also noticed by the Division Bench to further emphasisethat the evidence so collected would be relevant in all purposesconnected with any proceedings of the Income Tax Act. 10. The Tribunal's finding that no additions can be madeon the basis of statement recorded under Section 132(4) without anysupporting material, hence, cannot be a proposition of law for allsituations. What is to be looked into is the effect and the gravity of theadmissions made under Section 132(4) of the Act, seized documentsand attendant circumstances. We will first consider the deletion of`.21,60,000/- made in block assessment year 1997-98. It is seenfrom the order of the assessing officer as also the first appellateauthority that the assessee in the statement recorded during thecourse of search narrated that he had handed over 2 lakhs Saudi Riyals to Sri.Hassan Haji in pursuance of an agreement. It is true thatthis constituted a clear admission by the assessee under Section 132(4) of the Act. However, the assessee's contention was that thedocuments would reveal otherwise. The Tribunal noticed that theagreement dated 14.8.1996 seized from the premises of theassessee would show that the share of the investment of theassessee along with one another person was only to the extent of1.75 lakh Riyals and towards this share, being 25% of the totalamount, only one lakh Riyals was paid. This contention is furtherfortified by the notings made by the assessee in a diary dated August12, 1996 that “Hassan Haji has to give 2 lakh Riyals in respect of thehospital” (sic). The agreement dated 14.8.1996 was with respect to apartnership in a “Poly Clinic” and the first party to the agreementMangalasserry Hassan Haji, as per the agreement, was to pay 2 lakhRiyals. In such circumstances of the assessee's contention havingbeen proved on the strength of documents, the Tribunal found thatthe addition could be made only to the extent of the investment of theassessee in accordance with the agreement, supported by the diarynotings, both seized documents. The Tribunal on facts found that onlyan amount of 50,000 Riyals could be taken as the assessee's share.The addition of `.1,60,000/- as “rent” was also found to be not paid or received by the assessee as per the seized materials. The Tribunalhaving found that on facts and on the basis of the recitals in theseized materials that the additions can be confirmed only with respectto `.5,00,000/- for the relevant year, we are not inclined to interferewith the same. received by the assessee as per the seized materials. The Tribunalhaving found that on facts and on the basis of the recitals in theseized materials that the additions can be confirmed only with respectto `.5,00,000/- for the relevant year, we are not inclined to interferewith the same. 11. Now we come to the issue of brokerage and personalexpenses estimated by the assessing officer on the basis ofstatement recorded under Section 132(4). During assessmentproceedings, on a query regarding the disclosure of the income in theblock return, the assessee admitted that he used to receive`.50,000/- annually from brokerage activity, but however with a gap of1 or 2 years. It was noticed by the assessing officer that in the blockperiod from 1994-95 onwards the assessee had disclosed an amountof `.1,00,000/- as income from brokerage activity. Hence, taking intoaccount the assessee's admission about receipt of `.50,000/-annually, but with occasional gaps, the assessing officer excluded thefirst 2 years of the block period and estimated a total amount of`.1,50,000/- for the years 1991-92 to 1993-94 at the rate of `.50,000/-each year. The assessing officer also estimated the personalexpenses of the assessee for all the assessment years in the blockperiod relying on the statement made by the assessee that the personal expenses would come to `.10,000/- monthly. The Tribunaldeleted both the estimations on the ground that there is no seizedmaterial to substantiate the additions. 12. The learned counsel for the assessee would contendbefore us that the estimation on account of brokerage income as alsopersonal expenses is a mere guess work and the income onbrokerage as also the personal expenses declared by the assesseeshould have been adopted by the assessing officer. In this context,the admission of the assessee acquires significance. True that theassessee had disclosed brokerage income from 1994-95 at`.1,00,000/-, however, the assessee's clear assertion was that heused to receive `.50,000/- annually as brokerage income with a gapof 1 or 2 years. Considering the fact that the assessee was answeringspecific queries made with respect to the block period, there was noexplanation offered for not showing any brokerage income forassessments prior to 1994-95. It was in this circumstance that theassessing officer made an addition of `.50,000/- each for the years1991-92 to 1993-94 without making any addition in the first two yearsof the block period. The estimation made by the assessing officercannot be said to be a mere guess work, since the same is based onclear admissions and in consonance with the admission. 13. Regarding personal expenses, the learned counselfor the assessee would bring to our notice that the statement madeunder Section 132(4) was in the financial year 1997-98 and theassessing officer ought to have adopted the drawings disclosed bythe assessee for all the other years. It is pertinent to notice fromparagraph 13 of the assessment order that even for the assessmentyear 1998-99, the personal expenses for the year shown in the cashflow statement is only `.78,000/-, far below to that of the admissionmade under Section 132(4). The assessing officer also has notadopted the amount admitted by the assessee for all the years whileestimating the personal expenses at `.1,00,000/- in the assessmentyears 1989-90 to 1992-93 and `.1,20,000/- in the years 1993-94 to1998-99. The assessing officer confined it to `.60,000/- for the periodassessed in the year 1999-2000. The assessing officer would rely onattendant circumstances like the living standard of the assessee as isrevealed from a residential house of 5200 sq.ft. with an Out-house,foreign made cars and so on and so forth. The estimate made by theassessing officer on this count also cannot be said to beunreasonable and the deletion of the said additions by the Tribunal isfound to be unsustainable. 14. In the circumstances - 14. In the circumstances - (i) We refuse to answer the first question of law raised by the Revenue regarding the principles of deletion of additions laiddown by this Court in Annexure-E decision, since the said principlesneed no reiteration and the deletions have to be consideredindependently based on the said principles. (ii) The question of law regarding the addition of sale consideration of `.18,95,563/- (wrongly noted as `.18,60,063/- inpage 6 of the memorandum) is answered in favour of the Revenueonly to the extent of `.3,30,000/- being the amounts disclosed by wayof registered sale deeds. The deletion of `.15,56,563/- made by theTribunal is sustained. Thus, we answer the question partly in favourof the Revenue and partly in favour of the assessee. (iii) The third question raised regarding the deletion of `.15,00,000/- and `.1,60,000/- for the year 1997-98 is sustained andwe refuse to interfere, since no question of law arises from the issueas the Tribunal has decided the same on the basis of the materialsseized on search. (iv) The deletion of `.1,50,000/- for the assessment years 1991-92 to 1993-94 on account of brokerage income and the deletion of personal expenses for the block period estimated by the assessing officer is set aside, restoring the order of the assessing officer, asconfirmed by the first appellate authority, finding the same to bereasonable and on the basis of the clear admissions made by theassessee. (v)The deletion of investment of `.4,00,000/- withrespect to property purchased in the name of the assessee's wife andchildren is also set aside as the same is based on the recitals in aregistered document and assessing officer's order is restored on thatcount answering the question of law in favour of the Revenue andagainst the assessee. The appeal filed by the Revenue is partly allowed asnoticed above with no order as to costs. Sd/- C.N.Ramachandran Nair Judge vku/- Sd/- K.Vinod Chandran Judge. - true copy -