Ita/748/2009 Of The Commissioner Of Income Tax,Trichur v. Shri.k.v.sudhakaran,Kottakkal House

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 7TH JANUARY 2010 / 17TH POUSHA 1931 ITA.No. 748 of 2009() --------------------- AGAINST THE ORDER DATED 17/11/2006 IN CO.61/COCH/ 2004 & IT(S&S) A.55/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX,TRICHUR BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- SHRI.K.V.SUDHAKARAN, KOTTAKKAL HOUSE, KARAYAVATTOM PO VALAPPAD,TRICHUR. ADV. SRI.T.M.SREEDHARAN SMT.C.K.SHERIN SRI.V.P.NARAYANAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07/01/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 7th day of January, 2010 JUDGMENT Ramachandran Nair, J. This appeal is filed by the revenue challenging the order of the Tribunal quashing the block assessment completed against therespondent-assessee for the block period 1.4.1987 to 10.3.1998 on theground that the assessment made is not based on any material orevidence gathered in the course of search in the place of another personby name Sri. Anandan, who along with the respondent-assessee was apartner in M/s. Hotel Indraprastha. We have heard senior counselappearing for the revenue and Sri. T.M. Sreedharan, counsel appearingfor the respondent-assessee. 2. The facts leading to the dispute are the following. Therespondent-assessee was employed abroad for a long period and duringhis stay outside and after return he has made certain investments inbusiness particularly in a bar hotel as it's partner, along with one Sri.Anandan. Respondent was not an assessee under the Income tax Act and has not filed any returns under the Income-tax Act until notice wasserved under Section 158BC read with Section 158BD of the Act aftersearch in the premises of one Sri. Anandan. During search conductedin the business and residential premises of Anandan on 10.3.1998,certain documents were seized including the Balance Sheet of M/s.Hotel Indraprastha in which the respondent-assessee was a partner.From the Balance Sheet it was found that the assessee had contributedtowards capital in the form of Rs. 1,50,000/- in March, 1996. Thecapital contribution was in increased to Rs. 5,58,500/- in May, 1997and the same was increased to Rs. 5,89,500/- in July, 1997. Based onthe evidence gathered in the form of Balance Sheet of the firm, M/s.Hotel Indraprastha, the assessing officer issued notice under Section158BC read with Section 158BD and the assessee was called upon tofile written explanation for the investments. Even though the assesseefiled "Nil" return, the assessing officer collected information and calledupon the assessee to file cash flow stsatement showing investment andexpenditure. Based on information gathered, the assessing officer madeassessment for the block period from 1.4.1987 to 10.3.1998determining the total undisclosed income for the block period at Rs.8,02,635/-. The assessee challenged the assessment in appeal beforethe CIT (Appeals) on the ground that the proceedings under Section158 BD is not maintainable for the reason that income assessed is notbased on any evidence or material gathered during search, but is basedon cash flow statement, and therefore block assessment itself is withoutjurisdiction. The alternate contention was against various additionssustained in assessment. The CIT (Appeals) though upheld theassessment granted certain modifications to the amount assessed forthe block period. The department filed appeal against the order of theCIT (Appeals) modifying the assessment and assessee file cross-objections challenging that part of the order of the CIT (Appeals)upholding block assessment. The Tribunal after hearing both sidesallowed the cross-objections and since cross-objections was allowedcancelling the assessment, the departmental appeal for restoring thedeletions made by CIT (Appeals) was rejected as infructuous. It isagainst this order of the Tribunal that the Department has filed thisappeal raising question on the validity of assessment completed underSection 158BD of the Act. 3. The question to be considered is whether assessment under Section 158BD is tenable in this case. Admittedly the proceedingsinitiated against the assessee are based on the Balance Sheet and otheraccounts of partnership firm, M/s. Hotel Indraprastha, seized in thecourse of search of residential and business premises of one Sri.Anandan, who is another partner of the firm. Section 158BDauthorises the assessing officer to proceed with block assessmentagainst any person if the assessing officer is satisfied that anyundisclosed income belongs to such person other than the person withrespect to whom search was made under Section 132 based on thebooks of accounts, documents or assets seized in the course of searchof such other person, to proceed first by issuing notice under Section158BC to the person against whom information is gathered and tomake assessment thereafter. In this case, the assessing officer, whoconducted search of residential premises of one Anandan, underSection 158BC has jurisdiction to assess respondent-assessee as welland therefore he himself issued notice under Section 158BC read withSection 158BD against the respondent-assessee and made assessmentbased on the information available in the books of accounts seizedparticularly Balance Sheet of the firm, M/s. Hotel Indraprastha obtained in the search from the premises of one Anandan. Thecontention raised by the assessee and found acceptance by the Tribunalwas that the assessment is not based on any evidence or materialgathered in the course of search conducted in the premises of Anandan.However, the case of the department is that for proceeding forassessment against the assessee under Section 158BD is the BalanceSheet and other documents seized pertaining to the firm, M/s. HotelIndraprastha in which the respondent assessee had admittedly madeinvestments and was earning share of profit. The assessee does notdeny the investments made by him in the firm and his eligibility to earnprofit therefrom. However, the assessee's contention is that theassessment is based on cash flow statement furnished by him whichcannot be the basis for making assessment under Section 158BD of theAct. Counsel appearing for the assessee relied on the decision of theSupreme Court in MAMISH MAHESWARI V. ASST. CIT, 289 ITR341 and contended that the assessing officer has not stated hissatisfaction for proceeding for assessment against the assessee underSection 158BD and so much so the assessment itself is rightly vacatedby the Tribunal. Senior counsel appearing on behalf of the department submitted that recording of satisfaction for proceeding under Section158BD arises only when the assessing officer who conducted thesearch is not the person who has jurisdiction to make assessment underSection 158BD and the requirement of Section 158BD is to transfer thefile in such case to the officer having jurisdiction to assess the personagainst whom information is obtained in the course of search of anotherperson. His contention is that in this case the Officer who made thesearch of residential premises of Anandan has jurisdiction to makeassessment against the assessee, and the assessment made is based onthe documents and evidence gathered on search and other materials andinformation collected by the assessing officer. We find that Section158BB providing for computation of undisclosed income for blockperiod states that undisclosed income of the block period shall beaggregate of the total income of the previous years falling within theblock period computed in accordance with the provisions of the Act onthe basis of evidence found as a result of search or requisition of booksof accounts or other documents and such other materials or informationas are available with the assessing officer and relatable to suchevidence as reduced by the aggregate of the total income referred to in the clauses stated therein. 4. The question to be considered is whether the Tribunal'sfinding that assessment in this case is based on cash flow statementfurnished by the assessee is correct or not. We have to necessarilydisagree with the Tribunal's finding because the main document basedon which proceedings for assessment were initiated against the assesseeis the Balance Sheet of the firm, M/s. Hotel Indraprastha, seized fromAnandan which showed substantial investment by the assessee during1996-97 as stated above which is not denied by the assessee. In factcash flow statements were called for from the assessee only to find outthe source for investment and it is not as if the assessment is madebased on cash flow statement. All what the assessing officer has doneis rejection of cash flow statement and estimation of income based oninvestment made by the assessee in the Hotel business and onceassessment proceedings are initiated under Section 158BD based onevidence found in the course of search about undisclosed income of theperson other than the person searched, then it would be open to theassessing officer to make use of any other information available withhim or collected by him for making block assessment for such period. Since the finding of the Tribunal that assessment is solely based oncash flow statement furnished by the assessee is factually incorrect andsince the assessment is based on information collected in the form ofBalance Sheet and other documents of the firm, M/s. HotelIndraprastha seized from Anandan in the course of search carried out inhis premises, the block assessment under Section 158BD read withSection 158BD is tenable as found by the CIT (Appeals). We therefore allow the appeal by reversing the order of theTribunal and restoring the appeal to the file of the Tribunal for decisionon merits after hearing the assessee and the department. If there is anyother issue raised in the cross-objections on merit on additionssustained by the CIT, the same shall stand restored to the Tribunal forconsideration along with departmental appeal. (C.N.RAMACHANDRAN NAIR)Judge.Judge. (V.K. MOHANAN) Judge. kk