COMMISSIONER OF INCOME TAX, CHENNAI vs. S. AJIT KUMAR

In order to appreciate the facts of the present case in the appropriate manner, purpose would be served if we mention the facts in a summarized way which is as under:- a) The appellant herein is the Revenue whereas the respondent is the assessee. b) A search was conducted by the officers of the Income Tax Department in the premises of the assessee on 17.07.2002 which was concluded on 21.08.2002. On the same date, there was a survey in the premises of Elegant Constructions and Interiors Ltd. (hereinafter referred to as ‘M/s. ECIL’) - the builder and interior decorator who constructed and decorated the house of the assessee at Valmiki Nagar. c) Pursuant to the same, the fact that the assessee having engaged the above contractor for construction of the house came out. At the same time, from the survey in the builder’s premises, the fact of the assessee having paid Rs 95,16,000/- to M/s ECIL in cash was revealed which was not accounted for. d) The Assessing Officer, vide order dated 31.08.2004, after having regard to the facts and circumstances of the case, completed the block assessment and, inter alia, held that the said amount is liable to tax as undisclosed income of the block period. e) Being aggrieved with the order dated 31.08.2004, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). Learned CIT (Appeals), vide order dated 15.02.2005, held that it was COMMISSIONER OF I.T., CHENNAI v. S. AJIT KUMAR

Consequently, the Revenue has filed this instant appeal before this Court.

Heard the arguments advanced by learned senior counsel for the parties and perused the relevant records of the case placed before us. Point(s) for consideration:-

The short point for consideration which arises in this appeal is as to whether in the light of present facts and circumstances of the instant case, the material found in the course of survey in the premises of the builder could be used in Block Assessment of the assessee? Rival contentions:

At the outset, learned senior counsel for the Revenue contended that the High Court failed to consider that the information gathered as a result of search is not the details of appointment of interior decorator rather it is information regarding the cash payments made over and above the cheques payments and not accounted by the assessee. Further, it was also contended that it is the standard practice in the Department that when a search takes place in the case of an assessee, many related business premises are simultaneously covered under survey. Learned senior counsel further contended that though it is called a survey, it is very much part of the search process and the inquiry and investigation is one process. This is to be distinguished from the surveys which are stand-alone surveys, totally unconnected to any search. In order to conducted at the premises of M/s ECIL does not fall within the ambit of Discussion:- 8.In the present case, the period for Block Assessment is 01.04.1996 to 17.07.2002. Section 153A of the Income Tax Act, 1961 (for brevity “the IT Act”) provides the procedure for completion of assessment where a search is initiated under Section 132 of the IT Act or books of account or other documents or any asset are requisitioned under Section 132A of the IT Act.

It is a cardinal principle of law that in order to add any income in the block assessment, evidence of such must be found in the course of the search under Section 132 of the IT Act or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/ or persons who are connected with the assessee and are having transaction/dealings with such assessee. In the present case, the moot COMMISSIONER OF I.T., CHENNAI v. S. AJIT KUMAR [R. K. AGRAWAL, J.]

In the instant case, the office and residential premises of the assessee searched on 17.07.2002 and finally concluded on 21.08.2002. During the course of search, certain evidence were found which showed that the assessee had indulged in understatement of his real income relating to the block period from 01.04.1996 to 17.07.2002. Consequently, a notice dated 25.02.2003, under Section 158BC of the IT Act, was issued to the assessee and he was asked to file block assessment. In reply to such notice, the assessee filed return on 11.08.2003, admitting the undisclosed income as “NIL”.

In the present case, it is admitted position that the cost of investment was disclosed to the Revenue in the course of return filed by the assessee. The assessee also disclosed the detail of transaction between the assessee and M/s ECIL in the assessment year 2001-2002. However, he had not disclosed the payment of Rs. 95,16,000/- in cash made to M/s. ECIL.

The method of calculating the undisclosed income of the block period is provided under Section 158BB of the IT Act. It would be appropriate to re-produce the relevant part of Sections 158BB and 158 BH of the IT Act which is as follows: “158BB. Computation of undisclosed income of the block period.-(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year failing within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income , or, as the case may be, as increased by the aggregate of the losses of such previous year determined…… 158BH. Application of other provisions of this Act – Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.” (Emphasis supplied by us)

On a perusal of the above provision, it is evident that for the purpose of calculating the undisclosed income of the block period, it can be calculated only on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. Section 158BB has prescribed the boundary which has to be followed. No departure from this provision is allowed otherwise it may cause prejudice to the assessee. Needless to say that it is the cannon of tax law that it should be interpreted strictly.

However, Section 158BH of the IT Act has made all other provisions of the IT Act applicable to assessments made under Chapter XIVB except otherwise provided under this Chapter. Chapter XIV B of the IT Act, which relates to Block Assessment, came up for consideration before this Court in Hotel Blue Moon (supra) wherein it has been held as under:

The power of survey has been provided under Section 133A of the IT Act. Therefore, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee under Section 158BB read with Section 158 BH of the IT Act. The same would fall under the words “and such other materials or information as are available with the Assessing Officer and relatable to such evidence” occurring in Section 158BB of the Act. In the present case, the Assessing Officer was justified in taking the adverse material collected or found during the survey or any other method while making the Block Assessment.

In view of the foregoing discussions, we are of the considered opinion that the decisions relied upon by learned senior counsel for the assessee do not lay down the correct law.

In the result, all the appeals succeed and are allowed. The impugned orders are set aside and the orders passed by the Assessing Officer making the Block Assessment are restored. However, the parties shall bear their own cost. Nidhi Jain Appeals allowed.