The Commissioner Of Income-Tax, Salem v. K.bhuvanendran

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.12.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARAN &THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.2663 to 2665 of 2006 The Commissioner of Income-tax,Salem. ..Appellant in all the T.C.(A)s.Vs. K.Bhuvanendran ..Respondent in T.C.(A) No.2663 of 2006 P.S.K.Jagannathan..Respondent in T.C.(A) No.2664 of 2006 B.Saroja (LH)Legal Heir of ..Respondent in T.C.(A)P.S.K.Balasubramaniam No.2665 of 2006 Appeals under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Chennai, 'D' Bench dated17.03.2006 in I.T.(SS) A No. 116/Mds/2002 for the block period 01.04.1988to 18.03.1999, I.T.A.No.2270/Mds/2003 for the assessment year 1997-98 andI.T.A.No.796/Mds/2004 for the assessment year 1997-98. TC(A) 2663/06: Against the order of the Commissioner of Income - Tax (Appeals)Salem in ITA.No.76/2001-2002 dated 21.03.2002 against the order of DeputyCommissioner of Income - Tax, Special Investigation Circle, Salem inPAN/GIR.No.B-722, dated 29.03.2001. TC(A) 2664/06 : Against the order of the Commissioner of Income - Tax (Appeals)Salem in ITA.No.118/2002-2003 dated 24.09.2003 against the order of theIncome - Tax Officer, Ward I(1), Salem - 7 in PAN/GIR.No.HV-8990, dated26.03.2002. https://hcservices.ecourts.gov.in/hcservices/ TC(A). 2665/06 Against the order of the Commissioner of Income - Tax (Appeals)Salem in ITA.No.117/2002-2003 dated 09.12.2003 against the order of Income- Tax Officer, Ward I(1), Salem-7 in PAN/GIR.No.HV-8990, dated 26.03.2002. For Appellant in allthe T.C.(A)s. : Mr.J.Narayanaswamy JUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) These appeals are filed under Section 260A of the Income Tax Act,1961 by the Revenue against the order of the Income Tax AppellateTribunal, Chennai, 'D' Bench dated 17.03.2006 in I.T.(SS) A No.116/Mds/2002 for the block period 01.04.1988 to 18.03.1999,I.T.A.No.2270/Mds/2003fortheassessmentyear1997-98andI.T.A.No.796/Mds/2004 for the assessment year 1997-98, raising thefollowing common substantial questions of law:-1. Whether the statement made during the course ofsearch under section 132(4) of the Income Tax Act 1961voluntarily by a person is admissible in evidence ornot?2. Whether in the facts and circumstances of the casean admission made voluntarily relating to undisclosedincome, not immediately retracted within a reasonabletime, and was retracted only after the service ofsummons during the course of recording statement woulditself negate the admission?" 2. T.C.(A) No.2663 of 2006: The facts arising out of this appeal are as under:i)There was a search in the assessee's residential premises on19.03.1999. Notice dated 26.10.1999 was issued under Section 158BC of theIncome-tax Act ("Act" in short) to the assessee on 28.10.1999 giving 40days time for filing the return. Subsequently, the assessee filed Returnin Form 2B on 19.11.1999 declaring an undisclosed income of Rs.1,48,500/-.The assessee did not specifically included the sum of Rs.23 lakhs asundisclosed income in the Return eventhough he admitted the payment of thesaid amount relating to the purchase of a property at Door Nos.8 & 9,Arunachala Asari Street, Salem, by his wife, Rajalakshmi, and his sonsK.B.Srinivasan and B.Sakthivel, over and above the amount of Rs.34 lakhsdisclosed in the sale deed. Based on the admission, the Assessing Officeradded the amount of Rs.23 lakhs as undisclosed income for the assessmentyear 1997-98 of the block period 01.04.1988 to 18.03.1999. Aggrieved by https://hcservices.ecourts.gov.in/hcservices/ https://hcservices.ecourts.gov.in/hcservices/ the order, the assessee filed an appeal to the Commissioner of Income-tax(Appeals). The C.I.T.(A) allowed the appeal and directed the AssessingOfficer to delete the addition of Rs.23 lakhs. Aggrieved, the Revenuefiled an appeal to the Income-tax Appellate Tribunal ("Tribunal" inshort). The Tribunal dismissed the Revenue's appeal and confirmed theorder of the C.I.T.(A). ii)Learned Standing Counsel appearing for the Revenue submittedthat a mere denial of payment of on-money over and above Rs.34 lakhsmentioned in the document, by filing an affidavit could not absolve theassessee from the consequences of the sworn testimony recorded underSection 132(4) of the Act. Further it is submitted that the assessee hadno case to retract that the on-money has not been paid later and also theassessee himself has accepted that the admission given by him before theDeputy Director of Income-tax (Investigation) on the date of search ispurely voluntary and not out of compulsion, or there is no undue influenceon the assessee. Further it is contended, no more is necessary to proveand hence, the Revenue is right in assessing the sum of Rs.23 lakhs asundisclosed income for the block period. iii) Heard the counsel. In July 1996, the wife and the two sons ofthe assessee purchased a commercial complex at Door No.8 & 9, ArunachalaAsari Street, Salem for a sum of Rs.34 lakhs. In a statement recordedduring the course of search, the assessee stated that a sum of Rs.23 lakhswas paid over and above the registered value shown in the document andalso admitted that the same would be offered as undisclosed income for theblock period. Later on, the assessee did not offer this amount in theReturn for the block period, by a subsequent retraction by filing anaffidavit. On facts, we found in the statement recorded on 08.02.2001from the assessee, that the assessee had reached Salem from Chennai at6.15 a.m. on 19.03.1999 and soon after the arrival, the search officialsarrived at his premises at 7.30 a.m. placing two police officials withguns at the entrance of his house. The assessee did not have peacefulsleep during the train journey because of stomach pain due to gastriculcer and was restless. The assessee was told by the search officialsthat the proceedings will be completed smoothly if he agrees that there ison-money payment of Rs.23 lakhs. Hence, the assessee also admitted thesame, without being aware of the consequences. Further, the assessee madea statement that he was physically and mentally nervous and did not knowwhat he answered and also denied on 08.02.2001 that neither he nor any ofhis family members made any on-money payment. Further it is seen from therecord that the assessee is not the owner of the property and only hiswife and children are the co-owners. Later, on 04.01.2001, all the threeco-owners have also categorically denied payment of any on-money to theseller over and above Rs.34 lakhs mentioned in the registered document.Two statements were recorded from Shri.K.Jagannathan, the seller, on23.04.1999 as well as on 08.02.2001 and he has also categorically statedthat neither he nor any of his family members received any on-money fromthe buyer. Further there is no documentary evidence found or discovered during the course of search to prove that on-money has passed in the saletransaction. There is no basis for making addition by way of undisclosedincome. The Assessing Officer had only relied on the statement of a personwho is not a party to the immovable transaction and hence, there is nobasis for determining the undisclosed income for the block period. Thefollowing factors emerges from the facts of the case:a) No material found during the course of search; b) Statement recorded from the assessee was subsequently retracted andrebutted; c) Registered Sale Deed does not show any payment more than what wasdisclosed. during the course of search to prove that on-money has passed in the saletransaction. There is no basis for making addition by way of undisclosedincome. The Assessing Officer had only relied on the statement of a personwho is not a party to the immovable transaction and hence, there is nobasis for determining the undisclosed income for the block period. Thefollowing factors emerges from the facts of the case:a) No material found during the course of search; b) Statement recorded from the assessee was subsequently retracted andrebutted; c) Registered Sale Deed does not show any payment more than what wasdisclosed. Taking into consideration of the above factors including the fact that theRevenue could not bring on record any material or evidence to show thatthe assessee had paid on-money of Rs.23 lakhs, we are of the view that thestatement which is not relatable to seized material could not be a basisfor making any addition in the block assessment. Both the first appellateauthority as well as the Tribunal had given a concurrent finding.Paragraphs 4 and 5 of the order of the Tribunal, reads as under: "4.Admittedly no material was found during the courseof search operation. The statement said to be recordedfrom the assessee was subsequently retracted andrebutted. The registered Sale Deed does not show anypayment more than above what was disclosed. In theabsence of any material, in our opinion there cannot beany addition as undisclosed income. 5.Sec.158BB of the Income-tax Act provides forcomputation of undisclosed income. According toSec.158BB undisclosed income shall be aggregate of thetotal income of the previous year falling within theblock period computed in accordance with theprovisions of Income-tax Act on the basis of theevidence found as a result of search or any othermaterial or information available with the AssessingOfficer and relatable to the evidence found during thecourse of search. In this case admittedly there is noevidence or material found during the course of searchoperations. The statement recorded from the assesseewas subsequently retracted and rebutted. Furthermore, statement is not relatable to any seizedmaterial. Therefore, even the statement cannot be thebasis for making any addition. When the Sale Deeddiscloses a sale consideration, it is for the Revenueto show that what was disclosed in the Sale Deed isnot correct sale consideration. In this case theRevenue could not bring on record any material to showthat the asssessee has paid on money ofRs.23,00,000/-. Therefore in our opinion the Id CIT(A) has rightly deleted the addition. We do not find anyinfirmity in the order of the Id CIT(A). Accordingly,we confirm the same." From a reading of the above, it is evident that the reasons given by theTribunal are based on valid materials and evidence and hence we do notfind any error or legal infirmity in the order of the Tribunal and thereis no special factor or compelling reason which warrants interference ofthe impugned order of the Tribunal. Hence no substantial questions of lawarise for consideration of this Court and accordingly, the tax case isdismissed. 3.T.C.(A) Nos.2664 and 2665 of 2006: The facts arising out of these appeals are as under: has rightly deleted the addition. We do not find anyinfirmity in the order of the Id CIT(A). Accordingly,we confirm the same." From a reading of the above, it is evident that the reasons given by theTribunal are based on valid materials and evidence and hence we do notfind any error or legal infirmity in the order of the Tribunal and thereis no special factor or compelling reason which warrants interference ofthe impugned order of the Tribunal. Hence no substantial questions of lawarise for consideration of this Court and accordingly, the tax case isdismissed. 3.T.C.(A) Nos.2664 and 2665 of 2006: The facts arising out of these appeals are as under: i)The respondents in both these appeals are sellers of the saidproperty situated at Door Nos.8 & 9, Arunachala Asari Street, Salem. Therelevant assessment year involved in both these appeals is 1997-98 and thecorresponding accounting year ended on 31.03.1997. The assessees inT.C.Nos.2664 of 2006 and 2665 of 2006, filed Returns of income admittingtotal income of Rs.62,640/- and Rs.75,900 respectively, on 31.03.1999 forthe assessment year 1997-98. The Returns were processed under Section 143(1)(a) of the Act and subsequently, notices under Section 148 were issuedon the basis of information received from the Deputy Director of Income-tax that a survey was conducted in the business premises of the assesseesconsequent to the information gathered at the time of search in the caseof Sri.K.Bhuvanendran, the assessee in T.C.(A) No.2663 of 2006. At thetime of search, the said Bhuvanendran had admitted, while replying to theQuestion No.2 in the sworn statement recorded on 19.03.1999 that his sonsSri.K.B.Sreenivasan and B.Sakthivel and his wife Smt.B.Rajalakshmi hadpurchased a property at 8 & 9, Arunachala Asari St., Salem for a sum ofRs.34 lakhs as registered value and also paid Rs.23 lakhs as on-money topurchase the above property. In consequence of the same, a survey wasconducted in the business premises of the sellers, the respondents herein,on 23.04.1999. The assessees denied the receipt of on-money from thepurchasers. The Assessing Officer was of the view that the on-money ofRs.23 lakhs had been passed on to the sellers and hence the assessmentswere completed accordingly. Aggrieved by the orders, the assessees filedappeals to the C.I.T.(A). The C.I.T.(A) allowed the appeals and set asidethe orders of assessment. Aggrieved, the Revenue filed appeals to theTribunal. The Tribunal dismissed the appeals of the Revenue and confirmedthe orders of the C.I.T.(A). ii)Learned Standing Counsel appearing for the Revenue submittedthat the Revenue is right in making assessments on the basis of thestatement made by the buyer and hence, the assessments are in accordancewith law. iii) Heard the counsel. The Tribunal considered all the relevantmaterials and facts and come to a correct conclusion that there is nomaterial available for the Revenue to assess the same. Paragraph 6 of theorder of the Tribunal reads as follows: ii)Learned Standing Counsel appearing for the Revenue submittedthat the Revenue is right in making assessments on the basis of thestatement made by the buyer and hence, the assessments are in accordancewith law. iii) Heard the counsel. The Tribunal considered all the relevantmaterials and facts and come to a correct conclusion that there is nomaterial available for the Revenue to assess the same. Paragraph 6 of theorder of the Tribunal reads as follows: "6. Now coming to ITA Nos.2270/Mds/2003 & 796/Mds/2004,these appeals relates to the vendors of the property.The addition was made only on the basis of thestatement said to be made by Shri Bhuvanendran on19.03.1999. Admittedly, the said Shri Bhuvanendranretracted the statement. No other material wasavailable to show that any on-money was paid. TheAssessing Officer found that the property was locatedin a busy commercial locality and the market price ismuch more than the price quoted in the document. It iswell settled principles of law that market is nothingbut the price agreed between a willing purchaser and awilling seller. Therefore, it is for the purchaser andthe seller to determine the market price after takinginto consideration of the locality of the property.The state revenue authorities after considering thetransaction accepted the market price disclosed in theSale Deed. Therefore, the burden of proof is on theRevenue to show what is apparent is not real. In otherwords, the sale consideration disclosed in the SaleDeed cannot be rejected without any material to showthat the sale consideration disclosed in the Sale Deedwas not correct. In this case admittedly no materialwas available to show that the sale considerationdisclosed in the Sale Deed was not correct. In thosefacts and circumstances in our opinion the CIT(A) hasrightly deleted the addition. Accordingly, we do notfind any infirmity in the order of the lowerauthority." The reasoning of the Tribunal is based on valid materials and evidence.In the present cases, the Revenue failed to establish that there isactually on-money passed on to the seller and also there is no evidence toshow that there is understatement of sale consideration in the document.If the Revenue is able to produce evidence to show that there isunderstatement of sale consideration in the document, the Revenue may beright in inferring that on-money has been passed on to the seller. Itwould be otherwise harsh and inequitable to tax the assessee on incomewhich has neither arisen to him nor is received by him. It amounts to taxon notional or fictional income. Hence, we do not find any error or legalinfirmity in the order of the Tribunal so as to warrant interference.Hence, no substantial questions of law arise for consideration of thisCourt and accordingly, the tax cases are dismissed. 4.Under the circumstances, all the tax cases are dismissed.Consequently, T.C.M.P.No.1 of 2006 in T.C.(A) No.2664 of 2006 andT.C.M.P.No.1 of 2006 in T.C.(A) No.2665 of 2006 are closed. No costs. Sd/Asst.Registrar /true copy/ km Sub Asst.Registrar To 1. The Assistant Registrar,Income-Tax Appellate TribunalRajaji Bhavan, Besant Nagar, Chennai - 90.2. The Commissioner of Income-Tax, Salem.3. The Deputy Commissioner of Income-Tax,Special Investigation Circle, Salem.4. The Commissioner of Income-Tax (Appeals), Salem5. The Income-Tax Officer, Ward-I(1), Salem. 3 cc To Mr.N.Murali, Advocate, SR.63019 to 63021. T.C.(A)Nos.2663 to 2665 of 2006 BVR(CO)RVL 02.02.2007 https://hcservices.ecourts.gov.in/hcservices/