The Commissioner Of Income Tax,Tamil Nadu Iii, Madras v. K.narasa Reddy

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 11.09.2007 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.252 of 2004 The Commissioner of Income Tax,Tamil Nadu III, Madras. Appellant v. K.Narasa Reddy Respondent Tax Case Appeal preferred under section 260A of the Income tax Act,1961 against the order dated 30.05.2001 made in IT(SS)A.No.78/Mds/97 bythe Income Tax Appellate Tribunal, 'A' Bench, Madras.Tax Case Appeal 252 of 2004 against the order of the AssistantCommisssioner of Income Tax ,Central Circle III(3), Madras.34. dated28.2.97 Assessment year 1986-87 to 1996 -97 in PA No. /G1 No.47-098-Cy-9506 For Appellant:Mr.J.Narayanasamy, Jr. Standing Counsel for IT For Respondent :Mr.Venkatanarayanan for M/s.Subbaraya Iyar Padmanabhan JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) The assessee has filed the appeal framing the following questionsof law : 1.Whether the Tribunal was right in deleting the undisclosedincome relating to the assessment year 1995-96 and 1996-97when the return was filed long after the stand.2. Whether the Income Tax Appellate Tribunal was right incancelling the addition of Rs.1,60,000/- under section 2(22)(e) as deemed dividend? 2. The relevant block assessment period in this case is from 1986-87 to 1996-97. The respondent assessee is the Managing Director ofKences Foundation (P) Limited, a company engaged in the construction andhttps://hcservices.ecourts.gov.in/hcservices/sale of flats with its registered office at 33-A, B.N.Road, T.Nagar, Madras. There was a search in the residential premises as well as thebusiness premises of the assessee under section 132 of the Income TaxAct, 1961 on 23.02.1996. Consequent to the search block assessment hasbeen initiated and an assessment order has been made. In thatassessment, an addition has been made as undisclosed income. Theincomes were declared vide return filed on 30.07.1996 was at Rs.2,24,800for the assessment year 1995-96 and Rs.1,83,480/- for the assessmentyear 1996-97 vide return filed on 17.02.1997. These returns were filedadmittedly before the date of search under section 139(4) of the Act.The assessing officer considered the income disclosed in the returns asundisclosed income and also made an addition at Rs.1,60,00,000/- asdeemed dividend in the hands of the assessee under section 2(22)(e) ofthe Act for the block assessment. 3. On appeal to the Tribunal, the Tribunal, after considering thematerials made available before it, was of the view that there could beno question of deemed dividend in the case of assessee under section 2(22)(e) of the Act as the very ingredient of the section was not presentand the addition of amount as undisclosed by the assessing officer wasalready disclosed in the returns filed and on the said reasoning,allowed the appeal. The correctness of the said order is now questionedby the revenue in this appeal. The appeal has been admitted on thequestions of law above referred to. 3. On appeal to the Tribunal, the Tribunal, after considering thematerials made available before it, was of the view that there could beno question of deemed dividend in the case of assessee under section 2(22)(e) of the Act as the very ingredient of the section was not presentand the addition of amount as undisclosed by the assessing officer wasalready disclosed in the returns filed and on the said reasoning,allowed the appeal. The correctness of the said order is now questionedby the revenue in this appeal. The appeal has been admitted on thequestions of law above referred to. 4. Learned counsel for the revenue submitted that pursuant to thesearch made, block assessment has been made against the company in whichthe respondent assessee was the Managing Director. The block assessmentmade against the company was the subject matter of an appeal before thisCourt earlier in Tax Case Nos.10 & 47 of 2000. After a detailed hearingof the learned counsel on either side, this Court in the appealpertaining to the company thought it fit to remand the matter to theassessing officer for redoing the exercise by holding that the documentseized at the time of search would at best be considered as prima faciematerial, except the documents there was no seizure of money, bullion,jewellery or other articles or things of value during the time ofsearch. The said documents themselves would not be the sole criteriafor estimating the undisclosed income, in view of the explanationoffered by the assessee that they were prepared for the purpose ofsettling the dues of the outgoing director, who proposed to retire.Therefore the documents seized from the premises of the assessee at thetime of search were not conclusive proof to arrive at the undisclosedincome. As the subject matter of this appeal also is relating to theblock assessment of the director of the same assessee, this appeal mayalso be remitted to the assessing officer with an observation to theassessing officer to follow the directions given in the above case sincereported in 289 ITR 509. 5. Learned counsel for the respondent assessee also submits thatcertain points in disputes have been decided in favour of the assesseein the above said judgment. The points so held in favour of theassessee in that case can be directed to be made applicable to therespondent assessee in this case also by giving directions to theassessing officer.https://hcservices.ecourts.gov.in/hcservices/ 6. Having regard to the submissions made by the learned counsel oneither side for the remand of the matter and taking into considerationthe fact that even in the earlier case in respect of the assesseecompany, this Court has set aside the orders of the assessing officerand the Tribunal and remitted the matter to the assessing officer to dothe framing of assessment in accordance with law, we are of the viewthat in this appeal is also same order could be passed. Accordingly,the order of the assessing officer as well as the Tribunal are set asideand the matter is remitted back to the assessing officer to make theassessment in accordance with law and on the basis of the materialsavailable on record and in the light of the reasoning stated in the caseof the assessee's company reported in 289 ITR 509. sd/-Asst.Registrar To /true copy/Sub Asst.Registrar 1. The Assistant Registrar, Income Tax Appellate Tribunal Bench'C' ,Rajaji Bhavan, III Floor, Besant Nagar, Chennai.90. 2. The Assistant Commissioner of Income Tax Central Circle III (3), Madras.34. 3. The Commissioner of Income Tax Tamil Nadu III, Madras. + 1 cc to Mrs.Pushya Sitaraman Advocate SR.NO.56915. KK(CO)RD 16.9.07 T.C. (A) 252 of 2004