Itta/64/2000 Of Srinivasa Ferro Alloys Ltd v. The Asst. Commissioner Of Income Tax

* HON’BLE SRI JUSTICE L. NARASIMHA REDDYAND HON’BLE SRI JUSTICE CHALLA KODANDA RAM +I.T.T.A.No.64 OF 2000 %17.06.2014 Srinivasa Ferro Alloys Ltd., And ..... Appellant Assistant commissioner of Income Tax, Central Circle,Visakhapatnam. .....Respondent ! Counsel for the appellant: Sri Y. Ratnakar ^ Counsel for respondent : Sri S.R. Ashok < Gist: > Head Note: ? Cases referred: [1] 247 ITR 4482. (2013) 356 ITR 323 (A.P)3. 41 ITR 191 (SC)4. 106 ITR 1 (SC) HON’BLE SRI JUSTICE L. NARASIMHA REDDY ANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.64 OF 2000 JUDGMENT:- (per Hon’ble Sri Justice Challa Kodanda Ram) In this appeal preferred by the assessee under Section260A of the Income Tax Act (for short, ‘the Act’), he raised thefollowing questions of law, as arising from the order dated08.02.2000 of the Income Tax Appellate Tribunal, “B” Bench, “1. Whether in a block assessment items which werealready shown in regular I.T. Returns and in the accountsaccompanying the I.T. Returns and which are processedin regular assessments could be included as undisclosedincome when there was no material found in the course ofsearch in relation to the said items. 2. Whether the assessing officer holds the share holderto be benami of some other share holder, is the value ofthe shares held by such benami share holder liable to beincluded as income of the company itself when the realshare holder is someone else. 3. Whether in a block assessment, on the basis of thestatement recorded from one share holder who is allegedto be a benami shareholder can it be inferred that all theshareholders are benami shareholders without examiningeach of them. 4. Whether a Tribunal can dismiss the appeal filed byan assessee without first adjudicating upon the admissionof additional evidence filed along with the petition underRule 29 of the Tribunal Rules 1963. 5. Whether the assessee is entitled to claim that theassessment of the peak amounts should be made insteadof aggregate amount, based on the multiplicity oftransactions, the time lag, the frequency of thetransactions and the probabilities and inferencessurrounding the nature of transaction without any furtherevidence. In the event the peak balance could be consideredwhether the Tribunal correct in ignoring the appellantscontention that the peak balance is covered by the cashbalance available with the company and with theChairman and therefore no addition is called for. 6. Whether the amendment to proviso to Section 69 Ceffective from 01.04.1999 is prospective in operation orretrospective in nature. 7. Whether the assessee is entitled to deduct businessexpenditure admittedly incurred from cash outside thebooks of account while computing its assessableincome.” 2. The brief facts of the case are that the appellant’s premiseswere searched under the provisions of Section 132 of the IncomeTax Act (for short, “the Act) on 27.09.1996. Pursuant to thesearch the appellant had filed a return for the block period of 10years under the provisions of Section 158BC of the Act, disclosingthe undisclosed income at Rs.20,000/-. The block assessmentwas completed on an undisclosed income of Rs.4,49,16,630/-. Aggrieved by the assessment order dated 30.09.1997, theappellant filed Appeal under Section 253(1)(B) of the Act beforethe Income Tax Appellate Tribunal challenging the variousadditions made. By an order dated 08.02.2000, the Tribunaldeleted some of the additions and while confirming some. Aggrieved by the said order of the Tribunal, the present appeal isfiled. 3. However, on perusal of the record and on hearing thelearned counsel for both the parties, the following two questions oflaw would arise for consideration and would address thecontroversy in issue: 3. However, on perusal of the record and on hearing thelearned counsel for both the parties, the following two questions oflaw would arise for consideration and would address thecontroversy in issue: a) “Whether the amount reflected in Books ofAccount forming part of returns of a particularassessment year can constitute the subjectmatter of the proceedings under Chapter-XIVB ofthe Income Tax Act.Account forming part of returns of a particularassessment year can constitute the subjectmatter of the proceedings under Chapter-XIVB ofthe Income Tax Act. b) Whether an assessee is entitled to claimdeductions or allowances in respect of amountswhich are found as unaccounted cash paymentsin the course of search under the resultant blockassessment.”deductions or allowances in respect of amountswhich are found as unaccounted cash paymentsin the course of search under the resultant blockassessment.” 4. In relation to the block assessments certain additions weremade at the stages of appeal and further appeal also. Theappellant is aggrieved by the additions made, of certain amounts which formed part of the books of accounts, for earlier years. Tobe precise, the additions of sum of Rs.11,85,000/-, Rs.6,87,000/-and Rs.2,40,000/- are in issue. Like wise, disallowances ofcertain expenditure incurred for the purpose of business notforming part of the books of accounts, but discovered during thesearch are also in issue. Reframed questions 1 and 2 reflect thematters in issue in the present appeal. 5. The principal contention of Sri Y. Ratnakar, learned counselappearing for the appellant in relation to the additions forming partof question No.1 is that the amounts which have been added forthe purpose of assessment for the block period as undisclosedincome, are out rise the definition of the expression ‘undisclosedincome’ in Section 158B of the Act. He contends that all theamounts which were standing to the credit of respective parties inthe books of accounts since 1991 and were reflected in the returnsand the material was available for the Income Tax Officer, whomade the assessments for the respective years. He furthersubmits that the procedure adopted to ascertain the veracity orotherwise of the entries in the books of accounts in the earlieryears is contrary to the prescribed procedure for making theassessments for the block period under Chapter-XIVB of the Act. He relied upon the judgments of the High Court of Bombayreported in Commissioner of Income Tax vs. Vinod DanchandGhodawant[[1]]and High Court of Andhra Pradesh reported inCommissioner of Income-Tax v. B. Satyanarayana[[2]]. 6) Learned counsel submits that assuming but withoutconceding, that the appellant was not able to explain the amountsreceived towards share capital, an assessee, legally not capable of owning its own shares could not be assessed for the said sumsand it is only the share holders who could be assessed for theinvestments made by them. On this basis, he submits that theaddition of the respective amounts as undisclosed income in theblock assessment is totally unsustainable. 7. On the other hand, Sri S.R. Ashok, learned senior counselfor the revenue supported the orders of the Tribunal and submitsthat the authorities below had provided ample opportunity to theappellant to produce the persons in whose names, the creditswere standing in the books of the accounts. He submits theappellant failed to produce the said persons before the Income TaxOfficer, and he cannot complain of the additions made treating thesaid amount as undisclosed income of the assessee. 8. For the purpose of deciding the case on hand, we may noticehereunder Section 158B(b) of the Act that defines the term“undisclosed income”. 7. On the other hand, Sri S.R. Ashok, learned senior counselfor the revenue supported the orders of the Tribunal and submitsthat the authorities below had provided ample opportunity to theappellant to produce the persons in whose names, the creditswere standing in the books of the accounts. He submits theappellant failed to produce the said persons before the Income TaxOfficer, and he cannot complain of the additions made treating thesaid amount as undisclosed income of the assessee. 8. For the purpose of deciding the case on hand, we may noticehereunder Section 158B(b) of the Act that defines the term“undisclosed income”. “Undisclosed income” includes any money, bullion,jewellery or other valuable article or thing or any incomebased on any entry in the books of account or otherdocuments or transactions, where such money, bullion,jewellery, valuable article, thing, entry in the books ofaccount or other document or transaction representswholly or partly income or property which has not been orwould not have been disclosed for the purposes of thisAct.” 9. This provision was discussed and interpreted by the HighCourt of Bombay in the case of Commissioner of Income Tax (1supra) and by this High Court in Commissioner of Income-Tax (2supra). It was held that only such adverse material, as wasunearthed during the search, alone can be the basis for thepurpose of block assessment, and not the one, that disclosed in the books of accounts in the earlier assessment years. It issettled by catena of judgments that there is no duty cast on theassessee to draw specific attention to each and every item of thebooks of accounts and it is for the Income Tax Officer to drawconclusions, based on the record and material placed before himand elicit clarifications in the event of doubt. Reference in thiscontext may be made to the Calcutta Discount CompanyLimited vs. Income Tax Officer, Companies District-I, Calcuttaand another[[3]] a n d Parashuram Pottery Works company Limited vs. Income Tax Officer, Circle-I, Ward-A, Rajkot[[4]].Therefore, the amounts which were disclosed in the books ofaccounts for the earlier assessment years cannot be treated asundisclosed income, in the block assessment proceedings. 10. Accordingly, the question No.1 is answered in the negativei.e., in favour of the appellant and against the revenue. 11. So far as question No.2 is concerned, certain expenditurewhich were not brought into the books of accounts were added inthe block assessment. To be precise, the dispute relates to threepayments of Rs.3,00,000/-, Rs.65,000/- and Rs.1,80,413/-. Theappellant contends that while the assessing officer is entitled toconsider such expenditure as undisclosed income by invokingSection 69C of the Act, there is a corresponding duty to allow theexpenditure which was in fact incurred in the course, and for thepurpose of the business. 12) The Tribunal discussed this aspect in para Nos.97 to 112 ofits order. It found that the payments and receipts and the sourceof expenditure, have not been explained satisfactorily; and that the same were not reflected in the books of accounts of the assessee. It dealt with each of the entries and observed that the AssessingOfficer found the details of payments made by the assessee thebooks and that there was no satisfactory explanation forthcomingwith respect to the source for effecting the said payments. However, the explanation given for the amount of Rs.3,00,000/-that it was received from the individuals, was not considered, onthe ground that there is no material to support such claim. 12) The Tribunal discussed this aspect in para Nos.97 to 112 ofits order. It found that the payments and receipts and the sourceof expenditure, have not been explained satisfactorily; and that the same were not reflected in the books of accounts of the assessee. It dealt with each of the entries and observed that the AssessingOfficer found the details of payments made by the assessee thebooks and that there was no satisfactory explanation forthcomingwith respect to the source for effecting the said payments. However, the explanation given for the amount of Rs.3,00,000/-that it was received from the individuals, was not considered, onthe ground that there is no material to support such claim. 13) The plea of the appellant about Rs.65,000/- is that once theAssessing Officer disallowed the expenditure, the same cannot beadded for the purpose of assessment. Likewise, regarding theamount of Rs.1,80,413/- his explanation is that 6%, over andabove the interest which has been recorded in the books ofaccount, has been paid in cash, but it is not reflected in thebooks. His contention is that when an addition is being madetreating the said amounts as undisclosed income, thecorresponding expenditure must be allowed as expenditure, sincethe very basis of making addition is on the premises ofexpenditure is incurred, which has not been brought into books. 14) In this context Section 69C of the Act that was applicable forthe relevant assessment years, becomes related. It reads: “69C. Where in any financial year an assessee has incurredany expenditure and he offers no explanation about thesource of such expenditure or part thereof, or theexplanation, if any, offered by him is not, in the opinion of theAssessing Officer, satisfactory, the amount covered bysuch expenditure or part thereof, as the case may be, maybe deemed to be the income of the assessee for suchfinancial year. Provided that notwithstanding anything contained inany other provision of this Act, such unexplained expenditure which is deemed to be the income of theassessee shall not be allowed as a deduction under anyhead of income.” 15. The Tribunal found that each of the amounts which are addedby invoking Section 69C of the Act, did not form part of the booksof accounts and that there was no proper explanation or supportingmaterial, as to their source, in spite of opportunity was given to theappellant by the assessing officer. In our view, Section 69C of theAct would take in its sweep, not only of the expenditure which wasreflected in the books of accounts about also the other items ofexpenditure regarding which no proper explanation is forthcomingfrom the assessees, once they were discovered in the course ofsearch and seizure. To give any other meaning to the Sectionwould defeat the very purpose, for which it has been incorporatedin the statute. Therefore question No.2 framed above, is answeredagainst the appellant and in favour of the respondent. 16) In the result, the appeal is partly allowed, to the extentindicated above. There shall be no order as to costs. ___________________________ L. NARASIMHA REDDY, J Date:17.06.2014.Note:L.R copy to be marked.B/o.Gk ____________________________ CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE L. NARASIMHA REDDYAND HON’BLE SRI JUSTICE CHALLA KODANDA RAM Gk [1]247 ITR 448247 ITR 448 [2](2013) 356 ITR 323 (A.P)(2013) 356 ITR 323 (A.P) [3]41 ITR 191 (SC)41 ITR 191 (SC) [4]106 ITR 1 (SC)106 ITR 1 (SC) I.T.T.A.No.64 OF 2000 Date:17.06.2014.