Itr/215/1999 Of The Commissioner Of Incometax v. Dr.binoy Mathai

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR FRIDAY, THE 4TH APRIL 2008 / 15TH CHAITHRA 1930 ITR.No. 215 of 1999() --------------------- AGAINST THE ORDER IN RA 214/COCH/98 IN ITA.31/COCH//1997 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- COMMISSIONER OF INCOME TAX, KOCHI. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT RESPONDENTS: ------------- BINOY MATHAI, MUVATTUPUZHA. BY ADV. SRI.P. BALAKRISHNAN SRI.R.AMRITHARAJ THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 04/04/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - I.T.R.No.215 of 1999 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 4th day of April, 2008. JUDGMENT C.N. Ramachandran Nair, J. The reference case arises out of the order of the Income TaxAppellate Tribunal disposing of the respondent/assessee's appeal against theassessment under Section 158BC of the Income Tax Act for the blockperiod 1.4.1985 to 27.12.1985. A search was conducted in the premises ofthe assessee who is a medical practitioner, on 27.10.1985. Based on thematerials gathered, assessment was made for the entire block period whichincluded income assessable for the assessment year 1995-96. In the appealfiled by the assessee, the Tribunal noticed that the time for filing return forthe assessment year 1995-96 was extended by the Board of Direct Taxes, till31.10.1995 and therefore the assessee had time to file return for theassessment year 1995-96 as on the date of search. He, therefore, allowedthe assessee's claim by deleting from the income assessed for the blockperiod so much of the income returned by the assessee and assessed for theyear 1995-96 by granting the benefit of Section 158 BB(1)(d) of the Act. Atthe request of the Department, the Tribunal has referred the following question for our decision: “Whether, on the facts and in the circumstances of the case and on aninterpretation of clause (d) of Sec.158BB of the Incometax Act, theTribunal is right in law and fact in holding that the assessing officeris not justified in including in the block assessment the sum ofRs.1,69,278 as the undisclosed income for the assessment year 1995-96?” Learned Standing Counsel appearing for the Revenue contended that the assessee is not entitled to exclusion of income returned for the assessmentyear 1995-96, even though time for filing return was not over as on the dateof search, for the reason that Section 158BB(1)(d) does not authoriseexclusion of returned income but only income seen as accounted in thebooks of accounts by the assessee at least on or before the date of search. 2. Learned counsel for the assessee, on the other hand, contendedthat there is no finding in the block assessment that the assessee has notrecorded the amount in the books of accounts before the date of search andthe assessment itself is based on the income returned in the return filed forthe assessment year 1995-96. In order to appreciate the contentions, wehave to refer to two provisions which are relevant for the disposal of thisappeal. The same are extracted below: “158BA. Assessment of undisclosed income as a result of search 1. x x x x x x x x x x ITR 215/1999 2. x x x x x x x x x x 2. Learned counsel for the assessee, on the other hand, contendedthat there is no finding in the block assessment that the assessee has notrecorded the amount in the books of accounts before the date of search andthe assessment itself is based on the income returned in the return filed forthe assessment year 1995-96. In order to appreciate the contentions, wehave to refer to two provisions which are relevant for the disposal of thisappeal. The same are extracted below: “158BA. Assessment of undisclosed income as a result of search 1. x x x x x x x x x x ITR 215/1999 2. x x x x x x x x x x 3. Where the assessee proves to the satisfaction of the AssessingOfficer that any part of income referred to in sub-section (1) relatesto an assessment year for which the previous year has not ended orthe date of filing the return of income under sub-section (1) ofsection 139 for any previous year has not expired, and such incomeor the transactions relating to such income are recorded on or beforethe date of the search or requisition in the books of account or otherdocuments maintained in the normal course relating to suchprevious years, the said income shall not be included in the blockperiod.” 158BB. Computation of undisclosed income of the block period: (1) The undisclosed income of the block period shall be theaggregate of the total income of the previous years falling within theblock period computed, in accordance with the provisions ofChapter IV, on the basis of evidence found as a result of search orrequisition of books of account or documents and such othermaterials or information as are available with Assessing Officer, asreduced by the aggregate of the total income, or as the case may be,as increased by the aggregate of the losses of such previous years,determined,-- (a) to © x x x x x x x x x x (d) where the previous year has not ended or the date of filing thereturn of income under sub-section (1) of section 139 has notexpired, on the basis of entries relating to such income ortransactions as recorded in the books of account and otherdocuments maintained in the normal course on or before the date ofthe search or requisition relating to such previous years; (e) & (f) x x x x x x x x x Both the above provisions provide for exclusion of income of the previous year for which the time for filing return was not over as on the date of ITR 215/1999 search. In this case, even though the time for filing the return under Section139(1) was over, by virtue of general extension of time granted by theBoard of Direct Taxes for filing return for the assessment year 1995-96, theassessee had time till 31.10.1995 to file the return. In fact, the assessee hadfiled the return on the due date and what is added in the block assessmentunder challenge was the income returned by the assessee in the return forthe assessment year 1995-96. The question is whether on these facts, theassessee is entitled to the exclusion of income returned for the assessmentyear 1995-96 in the block assessment. 3. We find from a combined operation of the above two provisionsthat income of the previous year for which time for filing return was notover as on the date of search, could be excluded only if such income ortransactions pertaining to such income are recorded in the books of accountsor other documents maintained in the normal course of business on orbefore the date of search. Therefore, exclusion can be granted for theincome of the previous year, in respect of which time for filing return wasnot due or not over, only if the assessee is found to have entered in thebooks of accounts such income or the transactions pertaining to suchincome on or before the date of search. Unfortunately, this crucial issue isnot considered by any of the authorities including the Tribunal while ITR 215/1999 ITR 215/1999 disposing of the appeal. We are in agreement with the argument of thelearned counsel for the Revenue that even though time for filing return wasnot over as on the date of search, the assessee was entitled to exclusiononly if he is found to have recorded the returned income or the transactionspertaining to such income in the books of accounts. Therefore, the order ofthe Tribunal excluding such income without a finding that the said incomeor transactions pertaining to such income were recorded in the books ofaccounts maintained by the assessee, at least on the date of search is nottenable. Even though in principle we uphold the contention of the Revenue,we are not inclined to remand the matter for verification of the books ofaccounts pertaining to the search that took place more than 13 years back.In the absence of any finding by the assessing officer in the blockassessment or by the Tribunal in the appellate order that the assessee has notentered the income returned for the year 1995-96 in the books of accountsor the transactions pertaining to the same in the books of accounts at leaston the date of search and since assessment is based on income returned, wehave to assume that the assessee filed return based on the books of accountsonly. In the above view of the matter, we answer the question in favour ofthe assessee and against the Revenue. The Reference Case is disposed of ITR 215/1999 as above. The Registry is directed to forward a copy of the judgment to the Tribunal for passing consequential orders under Section 260(1) of the Act. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ ITR 215/1999 -7- C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - -I.T. - - - - - - - - - - - - - - - - - - - - - - JUDGMENT 17[th] March, 2008.