THE COMMISSIONER OF INCOME TAX,COCHIN vs. SHRI.V.M.MATHAI,PALARIVATTOM.

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ITA/1456/2009HC KeralaKLHC01026217200913 December 2018Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON6 pages
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What did the High Court hold?

The High Court decided each issue as follows: 1. Regarding the addition of Rs. 16,30,925/- for assessment year 1996-97, the Court upheld the Tribunal's deletion. The search occurred before the due date for filing the return for that year. The Court found no reason to treat the detected loans as undisclosed income at that stage, as the assessee had not yet filed the return. The AO's inclusion of this amount in the block assessment was deemed impermissible. The question was answered in favour of the assessee. 2. Concerning the addition of Rs. 51,210/- for assessment year 1993-94, the Court agreed with the Revenue that a belated return is of no consequence. However, it noted that the assessee had declared Rs. 50,000/- in a return filed after receiving notice under Section 158BC. The Court held that if the belated return was non-est, there was no warrant for adding the income declared in a subsequent return filed under notice. The deletion of Rs. 51,210/- was upheld, answering the question in favour of the assessee. 3. On the deletion of Rs. 76,850/- based on estimation, the Court disagreed with the Tribunal. It held that an AO conducting a block assessment is not divested of the power of estimation. The Court found the AO's estimation of deficiencies in drawings for personal needs and household expenses to be reasonable for assessment years 1993-94, 1994-95, and 1995-96. These additions were confirmed. However, for assessment year 1996-97, the addition of Rs. 12,000/- on this ground was deleted, as the return for that year had not yet been filed and the time had not reached at the time of inspection. The third question was answered in favour of the Revenue, except for the deletion for 1996-97.

What were the facts?

The Revenue has filed an appeal against an order of the Income Tax Appellate Tribunal (ITAT) concerning the block assessment for assessment years 1993-94 to 1996-97. The assessee, Shri V.M. Mathai, proprietor of VTM Builders, was subjected to a search under Section 132 on January 11, 1996. Following the search, a block assessment determined a total undisclosed income of Rs. 31,43,985/-. The assessee's first appeal was unsuccessful, but the ITAT allowed the appeal, leading to the present appeal by the Revenue before the High Court. The dispute involves the deletion of certain additions made by the Assessing Officer (AO) in the block assessment.

What were the issues?

The Tribunal had to decide three questions of law raised by the Revenue: 1. Whether the Tribunal was justified in deleting the addition of Rs. 16,30,925/- from the block assessment, given that the assessee neither returned this income for assessment year 1996-97 nor was it included in the regular assessment completed on January 29, 1999. (Question of law and fact, concerning block assessment provisions). 2. Whether the Tribunal was justified in deleting the addition of Rs. 51,210/- assessed as undisclosed income for assessment year 1993-94, considering the assessee's belated return for that year was non-est. (Question of law and fact, concerning block assessment and belated returns). 3. Whether the Tribunal was right in deleting Rs. 76,850/- on the ground that the addition was made on an estimate basis, and if an AO can estimate concealed income in a block assessment. (Question of law, concerning the power of estimation in block assessment). Assessee's Contentions: The judgment does not explicitly record the assessee's contentions. The Revenue argued that the belated return for 1993-94 was non-est and therefore the income should be treated as undisclosed. The Revenue also contended that the AO could estimate concealed income in a block assessment.

Which sections of the Income-tax Act were involved?

Section 132,Section 158BC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, . The

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 13TH DAY OF DECEMBER 2018 / 22ND AGRAHAYANA, 1940 ITA.No. 1456 of 2009 AGAINST THE ORDER/JUDGMENT IN IT(S&S)A No.35(COCH)/1997 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-08-2002 APPELLANT/S:/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX,COCHIN COCHIN. BY ADV.SRI. PKR MENON SR COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S:/APPELLANT/ASSESSEE: SHRI.V.M.MATHAI, VTM BUILDERS, PENTA ESTATE,, PALARIVATTOM. BY ADVS. SRI.BECHU KURIAN THOMAS (SR.) SRI.RONY JOSE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 1456/09 -2- K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA No.1456 of 2009 ------------------------------------------- Dated this the 13th day of December, 2018 J U D G M E N T Vinod Chandran, J. The block assessment for the years 1993-94 to 1996- 97 has come up for consideration in this appeal. The assessee's premises was subjected to a search under Section 132 on 11.01.1996. Block assessment was made which led to a total undisclosed income being determined of Rs.31,43,985/-. The assessee unsuccessfully filed first appeal, but succeeded in the appeal before the Income Tax Appellate Tribunal. The following questions of law arise from the order of the Tribunal, according to the Revenue: “(1) Whether, on the facts and in the circumstances of the case, since the assessee neither returned the income of Rs.16,30,925/- in the return filed for assessment year 1996-97 nor the Revenue included the same in the regular assessment completed on 29.01.1999, the Tribunal is justified in deleting the addition of undisclosed income of Rs.16,30,925/- from the block assessment? (2) Whether, on the facts and in the circumstances of the case and also in view of the fact that the return filed by the assessee for the assessment year 1993-94 being belated (and hence non-est) the Tribunal is justified in deleting the addition of Rs.51,210/- assessed as undisclosed income in the block assessment? (3) Whether, on the facts and in the circumstances of the case the Tribunal is right in law and fact in deleting Rs.76,850/- on the ground that “the addition have been made only on estimate basis” and can not the assessing

ITA 1456/09 -3- authority estimate concealed income in a block assessment?” 2. On the first question, it is to be noticed that the search itself was conducted on 11.01.1996. At that time, the time for filing the return for the assessment year 1996-97 had not reached. On the basis of certain loans detected from the books of accounts, the same was found to be undisclosed income. There was absolutely no reason to find it as undisclosed income, since the assessee had not filed returns for the said year, and the same was deleted from the block assessment. We do not find any reason to interfere with the same, since the AO himself could have considered the same at the time of filing of the return on the basis of the materials recovered on inspection. The Revenue's contention is that the assessee did not show it in the return of that year nor the AO assessed it. That is the folly committed by the AO since it was included in the block assessment; which definitely was not permissible. We, hence, answer the said question in favour of the assessee and against the Revenue and uphold the deletion of the addition of undisclosed income of Rs.16,30,925/- for the year 1996-97. 3. The second question relates to the addition of Rs.51,210/- in the year 1993-94. In that year, the assessee had filed a belated return showing the income as Rs.51,210/-. On receiving notice under Section 158BC, the assessee had filed a return for Rs.50,000/-. The learned Senior Counsel, Government of India (Taxes) submits that the return filed belatedly is of no consequence and hence it has to be taken as

ITA 1456/09 -4- undisclosed income. We agree with the said submission, but however, if the belated return is of no consequence, the undisclosed income has been returned by the assessee in a return filed on a notice issued after search. Hence, there is no warrant for adding on the income declared in a belated return. If at all, only Rs. 1,210 could have been added on being the excess income shown in the belated return. We do not think there is any warrant for making any such addition at this stage. The second question, hence, is answered in favour of the assessee and against the Revenue upholding the deletion of Rs.51,210/- for the assessment year 1993-94. 4. The last question is for the addition made with respect to the deficiency in drawings in each of the years of block assessment. We see that the AO had looked at the possible expenses that would have been incurred by the assessee for his personal needs and also looked at the drawings as per the balance sheet. In the first year, the assessee was found to be staying in a rented house. Considering the house-hold expenses, the annual requirement was treated as Rs.60,000/-. For personal expenses, the drawings, as were revealed from the accounts, were only Rs.39,650/-. The balance was brought to tax as undisclosed income. The estimation carried out by the Assessing Officer in the subsequent years is also found to be reasonable. The assessee's drawings had also increased in the said years and on a reasonable basis, there was an increase in the house-hold expenses estimated by the AO. The Tribunal had deleted the

ITA 1456/09 -5- same on the ground that additions have been made on an estimation basis. We do not think that the AO carrying out the block assessment is divested of the power of estimation which every assessment Officer carries with the office. In such circumstances, we are of the opinion that deficiency in the drawings for the years 1993-94, 1994-95 and 1995-96 are to be confirmed. We also notice that there was an addition made on deficiency in drawings in the year 1996-97 of Rs.12,000/-. As we noticed with respect to the first question, the assessee had not filed return and the time for that had not reached at the time of inspection. In such circumstances, there is no warrant for making such an addition in that year. The addition for that year alone would stand deleted. The third question of law is, hence, answered in favour of the Revenue and against the assessee. The Income Tax Appeal is allowed in part. No costs.

Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE

ITA 1456/09 -6- APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 25.3.97 ANNEXURE B TRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 28.8.2002. ANNEXURE C COPY OF THE SWORN STATEMENT DATED 16-1-96 ANNEXURE D TRUE COPY OF THE RETURN FOR THE ASSESSMENT YEAR 1996-97 ANNEXURE E TRUE COPY OF THE REGULAR ASSESSMENT ORDER DATED 29.1.99. [True Copy] jg

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