RAJRANI GUPTA vs. THE DY.COMMISSIONER OF INCOME-TAX and ORS.

assessment order. b) A   block   assessment   can   only   be carried   out   on   the   basis   of   documents found   during   the   search   and   not   on   the basis of other documents/evidence obtained otherwise   than   during   the   course   of   a search.     According   to   him,   the   entire basis   of   the   block   assessment   was   with regard to the gifts, were statements made by the appellant's husband and son to the SNC 10/44 ITXA 38-99.doc Uploaded on - 21/08/2020 FERA   (Foreign   Exchange   Regulation   Act) Authorities   on   06.11.1996   and   07.11.1996 respectively; and c) On   merits,   the   documents   found during   the   search   were   in   the   form   of copies   of   the   passport   of   the   donors, copies   of   their   NRE   accounts   and   also confirmatory   letters   from   the   donors regarding   the   fact   that   the   gifts   have been made to the appellant.  According to him none of the aforesaid documents either singly   or   together   could   lead   to   the

conclusion that the gifts are fake. This

conclusion   by   the   authorities   is   based merely   on   suspicion.   Suspicion   howsoever strong, cannot take a place of proof. In view   of   the   above,   Mr.   Jhaveri   submits that the additions of amounts received as gifts   to   the   appellant's   income   as unexplained credits and/or fake gifts   is not sustainable. SNC 11/44 ITXA 38-99.doc Uploaded on - 21/08/2020 As   against   the   above,   Mr.   Suresh   Kumar, the   learned   Counsel   for   the   Revenue­respondent submits as under: a) The   disclosure   made   by   the appellant   while   filing   its   return   of income was not a subject matter of inquiry in the assessment year 1994­95 and 1995­96 as   the   same   was   not   declared   as   her income.   So far as, assessment year 1993­ 1994   is   concerned,   the   Non   Resident Indians   gifts   received   from   NRE   account had not been brought to tax as undisclosed income in view of the fact that the same was   the   subject   of   inquiry   in   an   order passed under Section 143(3) of the Act on 28.09.1995. Therefore,   the   reliance   upon the   aforesaid   order   by   the   appellant   to establish   that   the   gifts   have   been disclosed   as   income   is   not   relevant   for the present proceedings; b) It   was   only   on   search   that   the documents found established that what had SNC 12/44 ITXA 38-99.doc Uploaded on - 21/08/2020 been disclosed as gifts were in fact not gifts but merely purchase of entries at a premium, so as to convert her undisclosed income into regular income.  Therefore the amounts   shown   as   gifts   were   in   fact undisclosed   income   and   therefore   within the scope of Chapter XIV­B of the Act; c) The   amount   taxed   as   undisclosed income under Chapter XIV­B of the Act were on the basis of material found during the search.   The   material   found   during   the search indicated that the gifts were not genuine; and d) In matter such as these, one can never   have   conclusive   evidence   and   one would   have   to   take   into   account   the surrounding circumstances particularly the fact   that   gifts   aggregating   to   Rs.35.47 lacs   were   received   by   the   appellant   and her family. This fact and the surrounding circumstances     would   be     tested   on   the probability   of   human   behaviour   to   arrive SNC 13/44 ITXA 38-99.doc Uploaded on - 21/08/2020 at   conclusion   whether   the   gifts   are genuine   or   not.     In   considering     such probabilities, it cannot be said that the

conclusion   was   reached   on   the   basis   of conjectures,   surmise,   inferences   and/or suspicions. 8 The second issue is that the commission of   Rs.2.42   lacs   received   from   M/s.Chintamani Advertiser   should  not  be   separately  subjected  to tax in view of the fact that out of Rs.40.98 lacs cash seized the respondents had estimated an amount of Rs.32.88 lacs as undisclosed income leaving a sufficient balance to cover the commission receipts of Rs.2.42 lacs was not raised before the Assessing Officer or the Tribunal. In the circumstances, the question no.(vii) would not arise for consideration by us.   Our court in the matter of CIT v. Tata Chemicals, reported in 256 ITR page 395 has held that an appeal to the High Court under Section 260A of the Act can only be on a question raised before the   Tribunal.   In   this   case,   admittedly,   the SNC 14/44 ITXA 38-99.doc Uploaded on - 21/08/2020 question  as  formulated   for  our   consideration   was not raised before the Tribunal.  Therefore there is no occasion for us to consider and answer the same. 9 Therefore in this appeal we are concerned only   with   the   alleged   gifts   received   by   the appellant from Non Resident Indians out of their NRE accounts.  Before, dealing with the respective submission   for   the   purposes   of   considering   the issue   raised   in   this   appeal,   we   may   usefully reproduce the relevant provisions of Chapter XIV­B of the said Act as under: 158B.    In   this   Chapter,   unless   the context otherwise requires.­ (a)..... (b) “undisclosed income” includes any   money,   bullion,   jewellery   or other   valuable   article   or   thing   or any income based on any entry in the books   of   account   or   other   documents or   transactions,   where   such   money, bullion,

jewellery,

valuable articles,   thing,   entry   in   the   books of   account   or   other   document   or transaction   represents   wholly   or partly   income   or   property   which   has not   been   or   would   not   have   been disclosed   for   the   purposes   of   this Act   [,or   any   expense,   deduction   or allowance   claimed   under   this   Act SNC 15/44 ITXA 38-99.doc Uploaded on - 21/08/2020 which is found to be false]. Assessment of undisclosed income as a

result of search 158BA(1)…. Computation of undisclosed income of the block period 158BB(1)  The   undisclosed   income   of the   block   period   shall   be   the aggregate of the total income of the previous   years   falling   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], (a) ... (b) ... (c) ... (d) ... (e) ... (f) ... Explanation­…… (2) In   computing   the   undisclosed income   of   the   block   period,   the provisions of sections 68,69,69A, 69B and   69C   shall,   so   far   as   may   be, apply   and   references   to   “financial year”   in   those   sections   shall   be construed   as   references   to   the relevant previous year falling in the block   period   including   the   previous year ending with the date of search or of the requisition. (3) The   burden   of   providing   to the   satisfaction   of   the   Assessing Officer   that   any   undisclosed   income had   already   been   disclosed   in   any return   of   income   filed   by   the SNC 16/44 ITXA 38-99.doc Uploaded on - 21/08/2020 assessee   before   the   commencement   of search or of the requisition, as the case   may   be,   shall   be   on   the assessee. (4) …. 10 Mr. Jhaveri submits that the sine­qua­non for application of Chapter XIV­B of the Act is that the   income   should   be   undisclosed   income. Undisclosed Income has been defined under Section 158B(b) of the said Act as any income or property which has not been or would not have been disclosed for   the   purposes   of   this   Act.     Mr.   Jhaveri   in support   of   his   submission   that   all   the   alleged gifts had been disclosed to the respondent, relies upon the return of income filed by the appellant for the assessment years 1993­94, 1994­95 and 1995­ 96   where   along   with   the   return   of   income,   the appellant   had   filed   her   Capital   Account   which disclosed the receipt of gifts. However, we are not really concerned with the disclosure made in the assessment   year   1993­94   for   the   reason   that   the gift  received during that year have not been made part   of   undisclosed   gifts   before   the   Tribunal. This is evident from paragraph 6 internal page 8 of SNC 17/44 ITXA 38-99.doc Uploaded on - 21/08/2020 the impugned order dated 25.02.1999. So far as, the assessment years 1994­95 and   1995­96   are   concerned,   it   is   an   admitted position that no assessment under Section 143(3) of the Act had been done for the above two years till the   initiation   of   block   assessment   proceedings under   Chapter   XIV­B   of   the   Act.     Mr.   Jhaveri submits that there is difference between a block assessment   and  regular   assessment.    According  to him, in a block assessment only that income can be subjected to tax which has not been disclosed but found as a result of search under the Act.   The assessment as block assessment under Chapter XIV­B of the Act is an assessment of undisclosed income unearthed, as a result of a search.  However, the same   would   not   affect   the   regular   assessment covering   the   previous   year   falling   in   the   block period.   It is therefore, his submission that in case the Assessing Officer was of the view that the gifts were not genuine, then the same having been disclosed   in   the   regular   assessment   could   be   a SNC 18/44 ITXA 38-99.doc Uploaded on - 21/08/2020 subject   matter   of   proceedings   for   reopening   of assessment   etc.   but   to   subject   such   disclosed income as a part block assessment is not available to   the   department/respondent.   In   support   of aforesaid submission, he relies upon the decision of   the   Supreme   Court   in   the   matter   of   Asst. Commissioner   of   Income   Tax   v.   Hotel   Bluemoon reported in 321 ITR page 362. 12 There can be no quarrel with the above proposition.     However,   where   the   income   has   not been disclosed and the same has been reveled during the   search   proceedings   then   block   assessment   as provided   under   Chapter   XIV­B   of   the   Act   would certainly apply.  The meaning of undisclosed income as   spelt   out   under   Section   158B(b)   is   that undisclosed   income   is   that   income   which   has   not been   or   would   not   have   been   disclosed   for   the purpose   of   this   Act.     In   the   present   case,   the appellant   had   not   disclosed   its   income   but   had incorrectly disclosed the same as  gifts received. This is for the reason that gifts are not income, SNC 19/44 ITXA 38-99.doc Uploaded on - 21/08/2020 they are received on capital account and can never be subjected to tax.  However, during the course of search,   it   was   found   that   the   appellant   had incorrectly declared large amounts as gifts, when in   fact   no   such   gifts   were   received   from   Non Resident Indians.   Therefore, where the gifts are found   to   be   not   genuine,   then   the   amounts represented   by   those   gifts   certainly   become undisclosed income. Further, the burden of proof is on the assessee in terms of Section 158BB(3) of the Act to satisfy the Assessing Officer that the so called   undisclosed   income   has   already   been disclosed   in   the   return   of   income   filed   by   the assessee.     To   our   mind,   mere   mentioning   of   an amount as capital receipt in the Capital Account would not amount to a disclosure of income.  This is   so,   as   a   capital   receipt   is   not   income   and consequently not subject to tax. 13

Mr. Jhaveri in support of his contention that   the   slleged   gifts   were   disclosed   income   to which   Chapter   XIVB   of   the   Act   would   not   apply SNC 20/44 ITXA 38-99.doc Uploaded on - 21/08/2020 firstly   relied   upon   the   decision   of   Delhi   High Court in the matter of L.R.Gupta v. Union of India reported in 194 ITR page 32 where the court held that   in   terms   of   Section   132   (1)(c)   of   the   Act “income which has not been disclosed” would mean income which the assessee has not returned in his income tax return.  Mr. Jhaveri states that in the present facts the gift has been shown along with her return of income filed for the assessment years 1994­95 and 1995­96. However, as held in L. R. Gupta (supra) at page 48 “The words ‘undisclosed income’   must   mean   income   which   is   liable   to   be taxed under the provisions of the Income Tax Act but which has not been disclosed by an assessee in an effort to escape assessment.   ‘Not disclosed’ must mean the intention of the assessee to hide the existence   of   the   income   or   the   assets   from   the Income Tax Department, while being aware that the same is rightly taxable.” Therefore in the present facts,   the   appellant­assessee   had   disclosed   a receipt as gifts only with an intention to hide the existence   of   its   income   which   was   otherwise SNC 21/44 ITXA 38-99.doc Uploaded on - 21/08/2020 taxable. In view of the above, this would be non disclosed income for the purpose of Chapter XIV­B of the Act; 14 He then relied upon the decision of the Delhi High Court in the matter of CIT v. Ashok Dua reported   in   177   Taxman   page   494. In   the   above case, the assessee had disclosed receipts of gifts in   his   return   of   income.     However,   during   the course   of   search,   gift   deeds   and   affidavits relating to the same were discovered. The Assessing Officer added the amount disclosed as gifts to the income  on  the  ground  that  the  gifts were  bogus. The Commissioner of Income Tax (Appeals) and the Tribunal   on   consideration   of   the   facts   involved therein,   came   to   the   conclusion   that   no incriminating material was found during the course of   search   to   indicate   that   the   gifts   were   not genuine. This concurrent finding of fact led the Delhi High Court to refuse to interfere with the orders of authorities under the Act.

In   the   present   facts,   the   confirmatory SNC 22/44 ITXA 38-99.doc Uploaded on - 21/08/2020 letters   addressed   by   the   donors   to   the   assessee were   identically   worded,   typed   on   the   same typewriter, the donors seemed were not related to the assessee, the aggregate gifts received by the family of the appellant was over Rs.35 lacs and all gifts were made allegedly out of love and affection for   the   appellant   and/or   her   family   members. Further,  no  circumstances  have  been  indicated  by the appellant before the authorities or during the hearing before us as to what was the occasion for apparent strangers to advance an amount aggregating Rs.35 lacs to the Gupta family as gifts.  Therefore the decision of Delhi High Court in the matter of Ashok   Dua   (Supra)   is   completely   distinguishable from the facts arising in the present case. 15

Mr.   Jhaveri   then   relied   upon   the unreported decision of the Punjab & Hariyana High Court in the matter of CIT v. V. P. Singh in Income Tax Appeal No. 194 of 2002 dated 16.04.2012. In the above case also, there was a finding of fact by the   Tribunal   that   the   gifts   received   by   the SNC 23/44 ITXA 38-99.doc Uploaded on - 21/08/2020 assessee   were   genuine   and   mere   non   filing   of   a return  of  income  would  not  result  in  making the gifts   an   undisclosed   income,   so   as   to   attract Chapter XIV­B of the Act.   In the case at hand, there is a finding of fact by the Assessing Officer as   well   as   the   Tribunal   that   the   gifts   are   not genuine and the appellant has not been able to show that the aforesaid conclusion of the Tribunal is arbitrary or perverse. 16 The unreported decision of this court in the matter of CIT v. Bombay Trading and Marketing Co.   in   Income   Tax   Appeal   No.2234   of   2009   dated 04.01.2010, wherein this court dismissed an appeal by the revenue on the ground that the Commissioner of Income Tax (Appeals) and the Tribunal held that where sundry creditors had been disclosed in the regular   return   of   income   and   accepted   by   the Department, it would not be open to the Department to allege that the amounts which were reflected as sundry creditor could not be added as a part of income in a block assessment under Chapter XIV­B of SNC 24/44 ITXA 38-99.doc Uploaded on - 21/08/2020 the Act.  In the above case also the Commissioner of Income Tax (Appeals) and the Tribunal had come to   a   finding   of   fact   that   the   income   had   been disclosed in the regular return of income filed by the   assessee   and   that   the   credit   balances   shown were not genuine.  In the present facts it was as a

result   of   search   that   the   revenue   came   across documents   which   led   it   to   the   conclusion   that whatever was shown as gifts were in fact not gifts, but undisclosed income which was shown as gifts. Therefore,   the   aforesaid   decision   also   is inapplicable to the present fact. 17 In Bhagvati Prasad Kedia v. CIT, reported in 248 ITR page 562(Cal), the department sought to consider   the   genuineness   of   loan   under   a   block assessment   even   though   the   same   had   been   duly accounted for in the regular books of account as found during the search.   In the above case the court held that Assessing Officer and the Tribunal were incorrect in holding that the loan could be taxed   as   undisclosed   income  inter   alia  on   the SNC 25/44 ITXA 38-99.doc Uploaded on - 21/08/2020 ground   that   the   loan   was   genuine   as   the   loan creditor was an assessee in whose assessment the loan advanced had been accepted by the Revenue.  As against the above, in the present case no evidence has   been   led   by   the   appellant   to   establish   the genuineness   of   the   gifts   such   as   producing   the donors before the authorities etc. Therefore in our view the present case is a clear case of the gifts being   undisclosed   income   which   is   subject   to Chapter XIV­B of the said Act. 18 In CIT v. Vikram Doshi reported in 256 ITR page 129 (Bom) the Tribunal had as a matter of fact   come   to   the   conclusion   that   if   the   income concerned had been disclosed and was the subject matter of regular assessment then the same cannot be   a   part   of   block   assessment.   The   aforesaid finding of the Tribunal being a finding of fact was not interfered with by this court. The facts in the present   case   are   completely   distinguishable   as there   are   concurrent   findings   of   fact   by   the Assessing   Officer   and   the   Tribunal   that   the   so SNC 26/44 ITXA 38-99.doc Uploaded on - 21/08/2020 called   gifts   were   in   fact   not   gifts,   but undisclosed income to which Section 68 of the Act would clearly apply. 19 We   therefore   find   that   none   of   the decisions which were relied upon by the appellant during  the  course  of  the  hearing  would  have any application to the facts of the present case.  In this case, there is a concurrent finding of fact by the   Assessing   Officer   and   the   Tribunal   that   the amounts shown as gifts were not genuine gifts, but were mere credits taken so as to evade payment of income tax.  Further, as gifts are not income being a capital receipt and not subject to income tax its disclosure or non disclosure is of no consequence for the purpose of the Act.  The Assessing Officer would   normally   accept   an   assessee's   return   of income along with the accounts showing an amount received as gifts in its capital account.  However, it is only on account of search that documents were unearthed / found which showed that the gifts were not   genuine,   but   only   a   method   to   convert   the SNC 27/44 ITXA 38-99.doc Uploaded on - 21/08/2020 appellant's unaccounted money into regular income. Therefore, we hold that the non genuine gifts to the appellant was undisclosed income and covered by the definition provided in Section 158B(b) of the Act. 20 The second contention of the appellant is that a block assessment can only be carried out in respect of documents found during the search and it is not open to the Assessing Officer to rely upon the   documents   and/or   evidence   other   than   those found   during   the   course   of   the   search   for   the purposes of assessment under Chapter XIVB of the Act.   The   submission   is   that   the   evidence   found during the search can alone be a basis for block assessment.   According   to   Mr.   Jhaveri   the authorities under the Act  have been influenced by the confessional statement made by the Appellant's son   and   husband   to   the   FERA   authorities   on 06.11.1996 & 07.11.1996 respectively to the effect that the gifts were not genuine and they paid a premium   of   8%   to   receive   the   gifts   from   Non SNC 28/44 ITXA 38-99.doc Uploaded on - 21/08/2020 Resident   Indians.     However,   the   statement   made before   the   FERA   authorities   were   withdrawn   / retracted   on   the   next   day   have   not   been   relied upon.  In any event, it is his contention that the statements made under FERA were made after over 6 months from the date of the search and therefore, was not evidence which was found during the course of search and therefore could not be relied upon for block assessment under Chapter XIVB of the Act. 21 This   submission   ignores   the   fact   that under   Section   158BB(1)   of   the   Act,   an   Assessing Officer has to compute the undisclosed income for the block period in accordance with the provision of the Act on the basis of evidence found,   as a

result of a search or other documents or materials available with the Assessing Officer and relatable to such evidence. In the present case, the evidence in the form of confirmatory letters, deed of gifts etc. were found during the course of search.  The authorities   on   examination   of   the   confirmatory letters   and   surrounding   circumstances   reached   a SNC 29/44 ITXA 38-99.doc Uploaded on - 21/08/2020 prima facie view that the gifts were not genuine. A notice dated 27.06.1996 under Section 158BC of the Act was accordingly issued.  Thereafter, before the assessment for the block period could be completed, the Assessing Officer came across the confessional statement made by the appellant's husband and son under   FERA     stating   that   the   gifts   were   not genuine.  Therefore, the statements made under the FERA   and   its   retractions   are   relatable   to   the confirmatory   letters   given   by   the   donors   of   the gifts found during the search of the appellant's premises. The confessional statement is certainly relatable to the evidence found during the course of the search. 22 Mr. Jhaveri in support of his submission that the block assessment has to be done only on the basis of the documents found during the course of the search, relied upon the   decision of the Madras High Court in CIT v. S. Ajitkumar, reported in 300 ITR page 152. The High court upheld the finding of the SNC 30/44 ITXA 38-99.doc Uploaded on - 21/08/2020 Tribunal   that   in   case   of   block   assessment   only documents found during the course of search could be a basis for block amount.   In the above case information   was   gathered   during   the   course   of survey operation at the premises of a third party and that information/material  was not relatable to any   material   found   during   the   course   search operation.   On the aforesaid finding of fact, the High Court refused to interfere.   In the present case, the Tribunal has essentially relied upon the documents   found   during   the   course   of   the   search such as identical confirmatory letters typed on the same   typewriter   not   from   relatives   but   from strangers (most were seamen) and the confessional statement   as   well   as   retraction   made   to   FERA authorities  which  were   relatable   to  the  material found during the course of the search.  Besides it seems that the amendment made to Section 158BB(1) of the Act in 2002 with retrospective effect from 1995 was not brought to the notice of the court. The section as amended permits assessment on the basis of any material with the Assessing officer SNC 31/44 ITXA 38-99.doc Uploaded on - 21/08/2020 relatable to the evidence found during the search.

Therefore   the   above   decision   is   distinguishable from the  present facts. 23 In CIT v. K. Bhuvanendran & Ors. Reported in   [2008]303   ITR   page   235(Mad)   a   statement   made during   the   course   of   the   search   that   certain undisclosed   income   had   been   paid   was   retracted. The Commissioner of Income Tax (Appeals) as well as the   Tribunal   held   that   the   retracted   statement could not be relied upon as there was no evidence or   material   found   during   the   course   of   search operation to which such statement could be related. The aforesaid findings of fact were not interfered with   by   Madras   High   Court.     This   above   case   is completely distinguishable as in the present facts, there   was   material   found   during   the   course   of search which gave rise to a finding that the gifts shown  by  the  appellant  were not genuine and the statement and the retraction thereof to the FERA authorities   were   certainly   relatable   to   the evidence found during the course of the search. SNC 32/44 ITXA 38-99.doc Uploaded on - 21/08/2020 In   CIT   v.   P.   K.   Ganeshwar   reported   in (2009)   308   ITR   page   124,   the   decision   in   S. Ajitkumar's   case   (Supra)   were   relied   upon   to conclude that only material found during the search could   be   relied   upon   for   the   purpose   of   block assessment.   In   the   aforesaid   case,   the   fixed deposits in fictitious names were found not during the   course   of   search,   but   during   the   course   of investigation which followed the search.   On the aforesaid facts, the Madras High Court held that since the information relating to fixed deposits in fictitious names was not found during the course of search,   it   could   not   be   used   to   arrive   at   the undisclosed   income   for   the   block   period.     As pointed out above, in the present case, the gifts were found not to be genuine on the basis of the evidence found in the form of confirmatory letters during the course of the search. 25 In CIT v. Ravikant Jain, 250 ITR page 141 the Delhi High Court held that undisclosed income for the block period can only be determined on the SNC 33/44 ITXA 38-99.doc Uploaded on - 21/08/2020 basis of evidence found as a result of search.  The court held that in case any evidence is found  de hors the search, the same could be brought to tax in   regular   assessment   and   not   as   a   part   of   the block   assessment.   In   the   aforesaid   case,   the Tribunal had come to a finding that the undisclosed income was not on the basis of any material found during the course of the search, but on the basis of a change of opinion i.e. the auditors report on the existing facts which had already been disclosed in the regular course of assessment.  Besides, it must be borne­in­mind that the aforesaid decision was   rendered   prior   to   2002   when   the   words “relatable   to   such   evidence”   was   introduced   in Section   158BB(1)   of   the   Act   with   retrospective effect from 1995. 26 The   Gauhati   High   Court   in   CIT   v.   Bimal Auto Agency, 314 ITR page 151 refused to interfere with a finding of the Tribunal that no material was found during the course of the search  for purpose of block assessment.  The court also held that the SNC 34/44 ITXA 38-99.doc Uploaded on - 21/08/2020 valuation   of   the   property   by   the   Department Valuation officer post the search was not material found during the course of search. The Tribunal on facts in the above  case had come to the conclusion that no material or evidence was found during the course   of   the   search   and   therefore   any   material obtained thereafter cannot be related to the search even post the 2002 amendment of Section 158BB of the Act. In the above facts the court refused to interfere.   The   facts   of   the   present   case   are completely

different

as in this case material/evidence  of   the  gifts  not   being   genuine were found during the course of search which led to the issuing of notice for block assessment. 27 We   therefore   find   that   none   of   the decisions which were relied upon by the appellant during  the  course  of  the  hearing  would  have any application to the facts of the present case. It is very clear that consequent to the amendment in 2002 to   Section   158BB   of   the   Act   documents   and/or information   available   with   the   assessing   officer SNC 35/44 ITXA 38-99.doc Uploaded on - 21/08/2020 and relatable to evidence found during the search is certainly evidence which can be used to compute the undisclosed income for the block period. 28 Infact while introducing the amendment by Finance Act, 2002 the CBDT issued a circular dated 27.08.2002 explaining the need for the amendment as under : “61.3 The   existing   provisions   of section   158BB   specify   the   manner   of computation   of   undisclosed   income   of   the block   period.     According   to   sub­section (1) of the said section, the first step is to   compute   the   aggregate   of   the   total income,   including   undisclosed   income,   of the previous year falling within the block period on the basis of evidence found as a

result of search or requisition and such other   materials   or   information   as   are available   with   the   Assessing   Officer. Such   aggregate   income   is,   thereafter,   to be adjusted for the income or loss which has already been assessed or declared, to arrive   at   the   undisclosed   income   of   the block period. 61.3.1 Some appellate authorities have held that income which can be included in the block assessment is only such income which   is   directly   evidenced   by   material found   during   the   search   and   does   not include income which has  been discovered on the basis of post­search inquiries made during   the   block   assessment   proceedings. This is contrary to the intention that nay undisclosed income discovered as a result SNC 36/44 ITXA 38-99.doc Uploaded on - 21/08/2020 of search is to be included in the block assessment as long as such income has been detected as a result of evidence gathered during the search. 61.3.2 The Finance Act, 2002, has amended section   158BB   to   clarify   that   the   block assessment of undisclosed income is to be based on the evidence found in the search and   material   or   information   gathered   in post­search inquiries made on the basis of evidence found in the search.” (emphasis supplied) 29 In   this   case   the   statement   and   the retraction   thereof   to   the   FERA   authorities   is certainly  relatable  to   evidence  found  during   the search   and   could   be   considered   to   compute   the undisclosed income.

30 Lastly,   it   was   submitted   on   merits   that the evidence found during the course of the search viz. copies of confirmatory letters from the donors of   the   gifts,   copies   of   passport   of   the   Non Resident Indian’s donors of the gifts and their NRE account singly or together do not indicate reason enough to record the conclusion that the gifts were not genuine.  Mr. Jhaveri submits that the entire case against the appellant is as on the basis of SNC 37/44 ITXA 38-99.doc Uploaded on - 21/08/2020 suspicion, conjectures and unwarranted inferences.

At   this   stage   it   may   be   relevant   to reproduce two confirmatory letters from the donors to members of Gupta family as an illustration of identical   language   from   donors   situated   in different countries, which are as follows: Letter 1) “From: Darshan Singh Raina, Starship Management Ltd, 801, Brickel Avenue, Suit – 1002, Miami, Florida 33131, U.S.A. Date : 21.09.1995 To, Mr. Sohanlal Gupta, 201­A, Lancelot, S.V.Road, Borivali (W), Mumbai – 400 092. My Dear Sohanlalji, By the grace of God, I trust this letter will find you and your family in the best of health and spirits.  Likewise I am also keeping fine. I   am   enclosing   herewith   a   cheque   no. 001437   dt.   21.9.95,   for   Rs.4,00,000/­   (Rs.   Four Lakhs   only),   drawn   on   Bank   of   Baroda,   N.R.E. Branch, Veena Nagar, Mulund (W), Bombay – 400 080, India, issued out of my N.R.E. Account No. 75016, the same has been accepted by you as per our oral talk. I have made this gift to the amount of Rs. 4,00,000/­ to you out of natural love and affection and the high esteem and regards the I have for you. Henceforward you are the sole owner of the proceeds SNC 38/44 ITXA 38-99.doc Uploaded on - 21/08/2020 of this gift and can enjoy the same as you may deem fit and proper.  I have made this gift without any past, present or future consideration of any kind whatsoever and declare that I have not got any type of right, title, control or interest on the amount gifted to you as mentioned hereinabove. Please convey my regards to BHABHIJI, ARUN & Renu, Love to Baby Aakansha. With best wishes, Yours lovingly, (DARSHAN SINGH RAINA) Letter 2) A.T.DIANOLD, U.S.M. (Pvt.) Ltd, 3 F Abdoolally House, 20, Stanely Street, HONG KONG. Dated: 2/2/1996 To, Shri. Sohan lal Gupta, 201/A, Lancelot, S.V.Road, Borivali (W), Mumbai – 400 092. My Dear Uncle, By the Grace of God, I trust this letter will find you and your family in the best of health and spirits.  Likewise I am also keeping fine. I   have   given   cheque   no.031029   dtd.13­12­ 95, for Rs.1,00,000/­ and cheque no. 031031 dtd. 02.02.96 for Rs.75,000/­ Both cheques drawn on Hong Kong   &   Shanghai   Banking   Corporation   Limited, Payable at Madras, issued out of my N.R.E. Account No.141 120023­006. The same has been accepted by you as per our oral talk. I have made this gift of the amount of Rs. 1,75,000/­   to   your   out   of   natural   love   and affection and the high esteem and regards that I have for you.  Henceforward you are the sole owner SNC 39/44 ITXA 38-99.doc Uploaded on - 21/08/2020 of the proceeds of this gift and can enjoy the same as you may deem fit and proper.  I have made this gift   without   any   past,   present   or   future consideration  of   any  kind  whatsoever  and   declare that   I   have   not   got   any   type   of   right,   title, control or interest on the amount gifted to you as mentioned hereinabove. Please convey my regards to Bhabhiji. How is Arun, Renu & Aakansha. With best wishes, Yours lovingly, (A.T. DIANOLD) 32 Mr.   Jhaveri   submits   that   these   letters were prepared by the appellant and her family for production before the Income Tax Authorities when called   upon   to   substantiate   the   genuineness   of gifts.  Therefore, they were all typed on the same typewriter and are identically worded. 33 However, as pointed out by the Tribunal, this was a position taken by the appellant for the first time only in rejoinder before it to meet the objections of the department.  One more fact which must be borne­in­mind is that most of the donors are seamen and none of them was produced before the Assessing Authority at the time of assessment to establish the genuineness of the gifts.  In matters SNC 40/44 ITXA 38-99.doc Uploaded on - 21/08/2020 such as these all facts are within the knowledge of the appellant and therefore the department is not expected   to   prove   its   case   with   mathematical precision  but a degree of probability of a prudent man taking into account the probable behavior of a reasonable

man

along

with surrounding circumstances.    In   fact  Parliament   realizing   the difficulty for the Revenue to prove its case to the hilt   provided   under   Section   158BB(3)   of   the   Act that the burden of proving to the satisfaction of the Assessing Officer that any income had already been disclosed is on the assessee.   Further, sub section (2) of section 158BB in terms provided that section   68   of   the   Act   relating   to   cash   credits would apply to block assessment and in such cases also   it   is   for   the   assessee   to   satisfactorily explain to the Assessing Officer, the source of the credit   found   in   the   books   of   an   assessee.     In matter such as these where all the facts are within the   knowledge   of   the   assessee   alone   it   is impossible for the revenue to prove the breach of law on the part of the assessee beyond reasonable SNC 41/44 ITXA 38-99.doc Uploaded on - 21/08/2020 doubts.   The Apex Court in the matter of Sumati Dayal   v.   CIT,   reported   in   214   IR   page   801   had observed   with   regard   to   an   assessee   claiming   to have received a large sum of money by winning in horse racing as under : “   There   is   no   dispute   that the   amounts   were   received   by   the appellant from various race clubs on the basis of winning tickets presented by her.  What is disputed is that were they   really   the   winnings   of   the appellant from the races.  This raises the question whether the apparent can be considered as the real.   As laid down by this court the apparent must be   considered   the   real   until   it   is shown   that   there   are   reasons   to believe that the apparent is not the real and that the taxing authorities are   entitled   to   look   into   the surrounding circumstances to find that the reality and the matter has to be considered   by   applying   the    test   of human probabilities.” The   court   further   observed   in   conclusion as under : “In our opinion, the majority opinion

after

considering

the surrounding circumstances and applying the   test   of   human   probabilities   has rightly concluded that the appellant's claim   about   the   amount   being   her winnings from races is not genuine.” SNC 42/44 ITXA 38-99.doc Uploaded on - 21/08/2020 In   the   present   case   the   alleged   gifts which   appeared   to   be   real   are   infact   not   real, particularly,   if   one   takes   into   account   the surrounding circumstances and applies the test of human   probabilities.   It   is   most   unlikely   in   the normal   course   of   human   conduct   for   a   family   to receive gifts  in  excess of  over Rs.35  lacs  from persons who are not related in any manner to the assessee   or   her   family.   Similarly,   while considering the order of the Tribunal, one is not required to examine the same through a microscope so as to discover a minor lapse here or there so as to   use   it   as   a   peg   on   which   one   can   raise   a question of law.  The Apex Court in the matter of Homi Jehangir Gheesta v. CIT, reported in 60 ITR page 135 observed that where the circumstances are such that the only proper inference one can draw is that receipt has to be treated as a income in the hands of the assessee such inferences are one of fact and not of law.  In the present case, if all the circumstances are taken together it certainly establishes that the alleged gifts received by the SNC 43/44 ITXA 38-99.doc Uploaded on - 21/08/2020 appellant­assessee   were   nothing   but   a   modes operandi to convert her cash income into regular income.   In   such   circumstances,   no   fault   can   be found   with   the   order   of   the   Tribunal   while considering the material found during the course of the search and particularly the identical letters written by the donors. 35 In   view   of   the   above   question   (i)   which also covers questions (ii) to (iv) are answered in the   affirmative   i.e.   in   favour   of   the   revenue­ respondent and against the appellant­assessee.  So far as, question no. (vii) is concerned as pointed out above the same does not arise from the order of the   Tribunal   and   is   therefore   dismissed   as   not maintainable. 36 The   appeal   is   dismissed.   No   order   as   to costs. (M.S. SANKLECHA, J.) (S.J.VAZIFDAR, J.) SNC 44/44 ITXA 38-99.doc Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)