C I T vs. JUGAL KISHORE MODI

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ITA/24/2005HC RajasthanRJHC02038636200513 October 20174 pages
AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the view taken by the ITAT. The Tribunal had observed that there is a distinction between regular assessments under Section 143(3) or 143(1) and block assessments under Chapter XIVB. The Explanation to Section 158BA(2) clarifies this distinction. In block assessments, the AO cannot make outside enquiries and investigations permissible in regular assessments. The Tribunal relied on CIT vs. Vikram A. Doshi and Bhagwati Prasad Kedia, holding that transactions disclosed in returns and subject to regular assessments are not undisclosed transactions under Section 158B. Sections 68 and 69 are applicable in block assessments only if incriminating documents are found, or there's a surrender of income or admission of concealed income. The AO's detailed investigation and enquiry, including obtaining pay-in-slips subsequent to the search, were permissible only in regular assessments. The case of CIT vs. Elegant Homes Pvt. Ltd. was distinguished as the assessee had not filed a return till the date of search. The Tribunal also noted that addition, if any, could only be made under Section 68 as per CIT vs. Stellar Investment Ltd. and CIT vs. Sophia Finance Ltd. Consequently, the addition of Rs. 34,11,000/- was deleted, and the AO was directed to allow the necessary relief, modifying the CIT(A)'s order.

What were the facts?

The appeal was filed by the Commissioner of Income Tax-Central, Jaipur (appellant/revenue) against the order of the Income Tax Appellate Tribunal (ITAT). The ITAT had partly allowed the appeal of M/s Jugal Kishore Modi Investment Co. Ltd. (respondent/assessee), reversing the findings of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The core of the dispute involved the deletion of an addition of Rs. 34,11,000/- made by the AO as unexplained investment, which the assessee had introduced as share application money. The High Court framed a specific question of law regarding the ITAT's justification for this deletion and whether its finding was perverse.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the ITAT was right and justified in deleting the addition of Rs. 34,11,000/- as unexplained investment, ignoring the fact that the money introduced as share application was bogus and constituted unexplained investment of the assessee company? (Question of law and fact, concerning Section 69 of the Income-tax Act, 1961). Assessee's Contentions: The ITAT's decision was based on the distinction between regular assessments and block assessments. The Tribunal held that the AO could not make outside enquiries and investigations permissible in regular assessments when conducting a block assessment. Transactions disclosed in returns and subject to regular assessments cannot be considered undisclosed transactions under Section 158B. Provisions like Sections 68 and 69 are applicable in block assessments only if incriminating documents are found, or there's a surrender of income based on seized documents, or admission of concealed income under Section 132(4). The material used by the AO for detailed investigation and enquiry, including pay-in-slips obtained after the search, could only be used in regular assessments. Revenue's Contentions: The revenue argued that the money introduced as share application was bogus and represented unexplained investment. They relied on the case of CIT vs. Elegant Homes Pvt. Ltd. (2003) 259 ITR 232 (Raj.).

Which sections of the Income-tax Act were involved?

Section 143(3),Section 143(1),Section 158BA(2),Section 158B,Section 158BB(1),Section 132(4),Section 68,Section 69,Section 263

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 24 / 2005 Commissioner of Income Tax-Central, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s Jugal Kishore Modi Investment Co. Ltd., 14, Gopi Nath Marg, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi For Respondent(s) : Mr. N.L. Agarwal _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE DINESH CHANDRA SOMANI Order 13/10/2017

1.

By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee reversing the finding of the CIT(A) as well as AO. 2. This Court while admitting the matter framed the following question of law:- “Whether on the facts and in the circumstances of the case and in law, the ITAT was right and justified in deleting the addition of Rs. 34,11,000/- as unexplained investment ignoring the fact that the money introduced as share application was bogus and was nothing but unexplained investment of assessee company and whether the finding of Tribunal on fact is perverse.”

(2 of 4) [ITA-24/2005] 3. While considering the matter, the Tribunal has gone into detail and after taking into consideration the law prevailing, has observed as under:- “25. We have already discussed the legal provisions and concluded on the basis of discussion in this order that there is distinction between regular assessment under section 143(3) or 143(1) of the Income-tax Act and in the block assessments to be made under Chapter XIVB of the I.T. Act. This distinction between regular assessment and search assessments had been clearly brought out in the Explanation under section 158BA(2) of the Income-tax Act, 1961, which reads as under: Explanation, - For the removal of doubts, it is hereby declare that- (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; (b) the total undisclosed income relating to the block period shall not included the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. 26. The AO, by dealing with regular assessment, is free to examine the veracity of the returns as well as the claims made by the assessee with regard to exemption and/or reduction. However, the undisclosed income is taxed by way of block assessment resulting in search and seizure on the basis of evidence found as a result of search and on the basis of such other materials or infomration as are available with AO and relatable to such evidence as per provisions contained in section 158BB(1) of the Income-tax Act and the AO cannot make outside enquiries and investigation which is permissible in the regular assessments. 27. It was rightly held in the case of CIT vs. Vikram A. Doshi (supra) that the transactions, which were disclosed in the returns, were the subject-matter of regular assessments, cannot be said to be undisclosed transactions falling under section 158B of the Income-tax Act, 1961.

(3 of 4) [ITA-24/2005] Similarly, it was also held in the case of Bhagwati Prasad Kedia, supra, that the AO was not entitled to question the genuineness of loan amount which was the subject-matter of regular assessment while making block assessment. 28. We hold that provisions of sections 68 and 69 etc. are applicable in the block assessments only when any incriminating document is found showing introduction of unexplained cash through share applications or the appellant had surrendered additional income on the basis of seized documents in the block assessments or the appellant had admitted introduction of concealed income in the shape of share application money or share capital during the course of statements recorded under section 132(4) of the Income-tax Act and only then the addition under sections 68 and 69 of the Income- tax Act can be made. 29. In this case, the AO has brought some material on record to show that money introduced

through

share

application money/share capital was not genuine after detailed investigation and enquiry and after obtaining pay-in-slips from the bank subsequent from the date of search. Such material can be used only in the regular assessments. The Revenue could have resorted to the provisions of section 263 of the I.T. Act, if they were of the opinion that the assessment framed under section 143(3)/143(1) of the Income-tax Act were erroneous and prejudicial to the interests of Revenue but no addition for unexplained share application/share capital can be made after enquiry and investigation in the block assessment. 30. The facts of the case of CIT vs. Elegant Homes Pvt. Ltd. (2003), 259 ITR 232 (Raj.), relied upon by the ld. D/R (IT) are distinguishable from the facts of the case before us. In the said case, the assessee had not filed the return till the date of search and no regular assessment was pending. Obviously, no regular assessment was made whereas in the case before us, the returns had been filed, assessments had been made under section 143(3)/143(1) of the Income-tax Act and the transactions had been disclosed in the returns of income filed. 31. It is also pertinent to observe that the AO had made addition for unexplained investment which can be considered under section 69 of the Income-tax Act. However, we are of the opinion

(4 of 4) [ITA-24/2005] that addition, if any, can only be made under section 68 of the Income-tax Act, as held by the Hon’ble Supreme Court in the case of CIT vs. Stellar Investment Ltd., 251 ITR 263 (SC) and CIT vs. Sophia Finance Ltd., 205 ITR 98 (Del) (FB). Therefore, the addition of Rs.34,11,000/- made

the

for

unexplained investment/income received through share application money/share capital and confirmed by the ld. CIT(A) is hereby deleted. The AO is directed to allow the necessary relief. The order of the ld. CIT(A) is modified in this extent.” 4. We are in complete agreement with the view taken by the Tribunal. 5. Hence, the issue is answered in favour of the assessee against the department. 6. The appeal stands dismissed. (DINESH CHANDRA SOMANI)J. (K.S.JHAVERI)J. A.Sharma/40

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