Ita/759/2008 Of The Commissioner Of Income Tax v. Sri A Thimmaiah Reddy

IN THB HIGH COURT OF KARNATAKA AT BENGALURU DATEBD THIS THE [th]DAY OF JANUARY 2015) PRESENT THER HON’BLE MR. JUSTICE N.KUMARAN 1 THER HON’BLE MR. JUSTICE B.VBEBRAPP I.T.A. NO.759/2008 BETWEEN: 1.|The Commissioner of | Income-tax, C.R.Building, Queens Road, Bangalore. oD The Deputy CommissionerOf Income-Tax (Inv.),Of Income-Tax (Inv.), Circle — 5(1), C.R.Building, Queens Road, Bangalore. ...APPELLANTS (By Sri.K.V.Aravind, Adv.) AND :. ori.A.Thimmaiah Reddy,since deceased rep. by his L.Rs.,omt.Muniyamma, No.9, Baretena Agrahara, -9O-. singasandra Post,| Hosur Road,| Bangalore. ... RESPONDENT This I.T.A. is filed under Section ZJO0OA of thIncome Tax Act, 1961, arising out of order dated29.02.2008 passed in IT(SS)A No.55/Bang/2002, for theBlock Assessment Period 01.04.1989 to 24.06.1999,praying to: 5$7formulate the substantial questions of lawstated therein,stated therein, 5$$7Allow the appeal and set-aside the orderspassed by the Income Tax Appellate Tribunal,Bangalore in IT(SS)A No.5s9/Bang/2002 dated29.02.2008 and confirm the order of theAppellate Commissioner confirming the orderpassed by the Deputy Commissioner ofIncome Tax (Inv.), Circle — 5(1), Bangalore, inthe interest of justice and equity. passed by the Income Tax Appellate Tribunal,Bangalore in IT(SS)A No.5s9/Bang/2002 dated29.02.2008 and confirm the order of theAppellate Commissioner confirming the orderpassed by the Deputy Commissioner ofIncome Tax (Inv.), Circle — 5(1), Bangalore, inthe interest of justice and equity. This I.T.A. coming on for,hearing,this day,N.Kumar J., delivered the following: JUDGMENT The revenue has preferred this appeal against the order passed by the Tribunal holding that the assessment as framed on the assesses, as legal heirs are incorrect and not valid in law and also on the'eround that no proceedings for Block Assessment couldhave been initiated against a dead person. 2. A search was conducted under Section 132 ofthe Income-tax Act (for short, hereinaiter referred to as‘the Act?) on 16.04.1999 in the residence of Late Sri.A.Thimmaiah Reddy by an authorization issued in thenameoT smt.Muniyamma,hiswife|andLegalrepresentative, as she was in occupation of hisresidence. The income earned and the property acquiredby Late Sri. A.Thimmaiah Reddy had not beendisclosed. Therefore, it was treated as an undisclosedincome and hence, proceedings were initiated underSection 158BC read with Section 158 BD of the Act!against Sri. A.Thimmaiah Reddy. The Assessing|Authority passed a Block Assessment Order levying tax,surcharge and also directed initiation of penalty proceedings. Aggrieved by the said order, the assesseepreferred an appeal to the Commissioner of Income-tax(Appeals), who dismissed the appeal confirming theorder passed by the Assessing Authority. 3. In appeal by the assessee before the Tribunal,the ‘Tribunal held that insofar as the immovableproperties are concerned, they are covered by the Willand the Will still remains to be executed. From the dateof death of Sri. A.Thimmaiah Reddy 1.e., on 17.06.1997,any income from the property will have to be assessedin the hands of the executor of the Will and not on the'assessee as legal heir because without the Will havingbeen acted upon by the executors, the assessee thoughby virtue of the Will become entitled to the propertyconsequent to the execution of the Will, the assesseecould not be said to be in enjoyment of the property asan owner. Therefore, the Tribunal held that the. 3. In appeal by the assessee before the Tribunal,the ‘Tribunal held that insofar as the immovableproperties are concerned, they are covered by the Willand the Will still remains to be executed. From the dateof death of Sri. A.Thimmaiah Reddy 1.e., on 17.06.1997,any income from the property will have to be assessedin the hands of the executor of the Will and not on the'assessee as legal heir because without the Will havingbeen acted upon by the executors, the assessee thoughby virtue of the Will become entitled to the propertyconsequent to the execution of the Will, the assesseecould not be said to be in enjoyment of the property asan owner. Therefore, the Tribunal held that the. assessments as framed on the assessee as legal heirsare incorrect and not valid in law. It was also held that|the term Block Period’ as defined under Section|1lo8B(a) of the Act requires ten years backwards fromthe date of search. The said 10 years period shouldstart from the date of search and go backwards and itshould be a continuous period. In the instant casegoing backwards from the date of search had collapsedafter two years because Late Sri. A.Thimmaiah Reddyhad passed away on 17.06.1997. Therefore, the|condition of Block period not having been satisfied, theassessement is bad in law and therefore, the order was.quashed by the Tribunal. Aggrieved by the said order,the present appeal is filed. 4. The substantial questions of law that arise forconsideration in this appeal as framed on 30.11.2010are as under: -6-. t) Whether the Trnbunal was correct inholding that the Block Assessment hadbeen framed with reference to bankdeposits and accounts made during thelifetimeof|deceasedLate|oru.A.Thimmaiah Reddy and as_ thesedeposits / accounts were not in thepossession of the legal representatives onthedateof|search16.04.1999|TlLassessments on them can beframed? tt) Whether the Tribunal was correct inholding that as per the Will executed bylate Sri. A.Thimmatiah Reddy it was theexecutor who was liable to be treated asparty respondent and not the _ legarepresentativesof|lateA.ThimmaiaqhReddy who were not in enjoyment of theproperties of late A.Thimmaiah Reddy asownersr ttt}Whether the Tribunal was correct inholding that the proceedings initiated bythe Assessing Officer against the legal a a representativesof|lateA.ThimmaiahReddy namely Smt.Muniyamma and theotherlegalheirs.smt.Janakamma,smt.T.Premavatht,omt.T.Manyjula,smt.Chandravadana, sSri.DasaratharamReddy and Sri.T.Sathyanarayana Reddyto bring to tax the undisclosed income ofRs. 1,55,30,300/7in|accordancewithSection 159 of the Act was_ incorrect,invalid and not valid in law? tv) Whether the Tribunal was correct inholdingthatthecomputationofundisclosed income for the Block Period1.4.1989 to 24.06.1999 collapses aftertwo years as late Sru.Thimmatiah Reddydied on 17.06.1997 and the computationcannot be made for the entire ten yearsBlock period? Oo. We have heard the learned counsel appearingfor the parties. Admittedly, on the date of search Sri.A.Thimmaiah Reddy was not alive. His wife was residing in his premises. It is not clear that in whose name thesearch warrant was issued. BKven if search were§conducted in the premises of his wife, if incriminatingmaterials were found in respect of Late Sri.A.ThimmaiahReddy and proceedings are initiated against Late Sri.A.Thimmaiah Reddy, the conditions stipulated insection 158BD of the Act, have to be satisfied. The.materials on record do not disclose the satisfaction ofthe said legal requirements. Therefore, as rightlypointed out by the Tribunal, ten years period is to bereckoned from the date of search continuously. Thematerial on record shows that the search warrant was|issued in the name of Smt.Muniamma, who was in)possession and occupation of the residential premises ofLate Sri. A.Thimmaiah Reddy, but there is nothing onrecord to show that the requirements under Section158BD of the Act have been complied with. In thosecircumstances, the order passed by the Tribunal specifying the Block Assessment year against thedeceased Sri.A.Thimmaiah Reddy cannot be found faultwith. The third substantial question of law is answeredin favour of the assessee and against the Revenue. — v7. In view of the fact that the requirements ofsection 158BD of the Act are not complied with, theentireBlockassessmentsproceedingswhichaI €initiated, is liable to be set-aside. Therefore, we havenot gone into the other substantial questions of lawframed in this appeal. Accordingly appeal isdismissed Sd/-.JUDGE. Sd/-.JUDGE| SPS