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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 27TH DAY OF SEPTEMBER, 2021
PRESENT
THE HON’BLE MRS.JUSTICE S.SUJATHA
AND
THE HON’BLE MR. JUSTICE RAVI V. HOSMANI
I.T.A.No.471/2017
BETWEEN : 1. PR. COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA, BANGALORE
THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(5), BENGALURU.
...APPELLANTS
(BY SRI SANMATHI E.I., ADV.)
AND : M/S JANSON INVESTMENTS PVT. LTD., NO.75-76, COMMERCIAL STREET, BANGALORE, PAN : AAACJ2892C.
…RESPONDENT
(BY SRI A.SHANKAR, SENIOR COUNSEL A/W SRI BHAIRAV KUTTAIAH, ADV. FOR SRI M.LAVA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16/12/2016 PASSED IN IT(SS)A NO.4/BANG/2014, FOR THE ASSESSMENT YEAR 1991-92 TO 24/01/2001, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE ORDER DATED 16/12/2016 PASSED BY THE ITAT, 'B' BENCH,
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BENGALURU, IN IT(SS)A NO.4/BANG/2014 FOR ASSESSMENT YEAR 1991-92 TO 24/01/2001 AS SOUGHT FOR IN THIS APPEAL.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
This appeal is filed by the Revenue under Section 260-A of the Income Tax Act, 1961 [‘Act’ for short] challenging the order dated 16.12.2016 passed in I.T.(S.S)A.No.4/Bang/2014 by the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bengaluru (‘Tribunal’ for short) relating to the assessment year 1991-92 to 24.01.2001.
Revenue has also filed another appeal in ITA No.472/2017 challenging the order of the Tribunal relating to the assessment year 1991-92 to 24.01.2001 in the very same assessee’s case.
This appeal was admitted by this Court to consider the following substantial question of law:
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“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made by assessing authority with regard to unexplained investments by erroneous holding that the assessing authority has not furnished its report after verifying the recipient even when the onus/burden is on the assessee to prove the veracity of evidence found against him in the course of search as per section 69C of the Act and without considering the contents of seized materials?”
However, having heard the learned counsel appearing for the parties and considering the material on record, we re-formulate the substantial questions of law as under:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made by assessing authority with regard to unexplained investments by erroneous holding that there is no evidence brought on record by assessing authority and no
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opportunity was granted to assessee to cross examine the witnesses without appreciating the contents of sized proved the unexplained investments made by assessee and assessing authority had made the addition on basis of search materials and not on basis of oral evidence of farmers?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made by assessing authority with regard to bogus expenditure on lands by holding that the sister concern of the assessee namely, M/s. Jansons Architectural and Interior Consultants Bangalore [JAIL] has offered to tax to the above expenditure as its income without considering the issue that whether the said expenditure claimed by assessee on lands is bogus or not by also ignoring the fact that assessing authority had verified the books of account of sister concern which was reproduced in the assessment order and as such the order passed by Tribunal is perverse in nature?”
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This is the second round of litigation inasmuch as the issues involved herein are concerned. The assessee is a company and carrying on business of real estate. Pursuant to the search action conducted on 24.01.2001 in the premises of the assessee as well as at the residents of the Directors of the company, some incriminating materials were seized from the premises of the assessee. After conclusion of search operation, proceedings were initiated under Section 158BC of the Act and called upon the assessee to file its undisclosed income. The block assessment proceedings were concluded by the order passed under Section 158BC read with Section 143[3] of the Act on 13.01.2003. In the said proceedings, the Assessing Officer added certain additions as under: “a) Unexplained income from Jansons Mall:
Rs.20 lakhs.
b) Unexplained investment in lands at Buttanahalli:
Rs.84,62,805.
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c) Bogus expenditure claim in respect of the land in Gooliyanandagunda village: Rs.92,00,200.”
Being aggrieved, the assessee preferred appeal before the Commissioner of Income Tax [Appeals] who partly allowed the appeal by canceling the levy of surcharge but upheld the determination of undisclosed income assessed by the Assessing Officer. On further appeal before the Tribunal, both the assessee as well as the Department challenged the said order of the Commissioner of Income Tax [Appeals]. The Tribunal partly allowed the appeal of the assessee dismissing the appeal of the Revenue, remanding the matter to the Assessing Officer for fresh adjudication by referring to the order of the sister concern and also by confronting the same to the assessee with all material in this connection.
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Pursuant to the said directions issued by the Tribunal, the Assessing Officer has passed the order confirming the addition made in the earlier round, deleting the addition on account of unexplained expenditure with respect two items i.e., unexplained investments land in Bettanahalli of Rs.82,86,250/- and bogus expenditure on lands at Gooliyanandagunda of Rs.92,00,200/-, modifying the unexplained expenditure with respect to Janson Mall at Rs.2,00,000/- instead of Rs.20,00,000/- i.e., giving relief to the extent of Rs.18,00,000/-.
Being aggrieved, the assessee has preferred appeal before the Commissioner of Income Tax [Appeals] which came to be allowed in part against which the assessee preferred appeal inasmuch as restricting the addition to Rs.2,00,000/- as regards unexplained income from Jansons Mall. Being aggrieved, this appeal is preferred by the Revenue against the findings of the
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Tribunal with respect to unexplained investments, land in Buttanahalli of Rs.82,86,250/- and bogus expenditure on lands at Gooliyanandagunda of Rs.92,00,200/-,
Re. Substantial Question of Law No.1:
This issue relates to the unexplained investments in lands of Buttahanahalli amounting to Rs.82,86,250/-. The Assessing Officer observing that the registered sale deeds and the agreements to sell with respect to the lands measuring 16 acres 6 guntas not recorded in the books, made addition of Rs.33,98,250/- extrapolating the rate from the agreement to sell and further applied the same to the balance lands measuring 20 acres 31 guntas thereby making further addition of Rs.50,64,555/- placing reliance on the statement of some of the farmers recorded. The Commissioner of Income Tax [Appeals] has confirmed the same. The Tribunal has observed
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that the Assessing Officer has failed to follow the directions issued by the Tribunal in the first round; no opportunity was given to the assessee to cross-examine the farmers whose statements were relied upon. Placing reliance on the ruling of the Hon’ble Apex Court in the case of Andaman Timber Industries V/s. CCE [(2015) 62 taxmann.com 3 (SC)], the Tribunal held that addition is not sustainable.
With respect to the addition based on the extrapolated data, the Co-ordinate Bench of this Court in the case of Commissioner of Income-Tax, Bangalore V/s. Gowri Gopal Textile Processing [P.] Ltd., [(2012) 204 Taxman 128] has held thus:
“Therefore, while computing the undisclosed income for the block period, the 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
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evidence ahs to be taken into consideration. In other words, the computation of undisclosed income should be based on such evidence which is seized during search which is not accounted in the regular books of account. It is the aggregate of the total income of the previous year falling within the block period and the undisclosed income which is substantiated by the evidence at the time of seizure is to be taken into consideration. Out of the said aggregate income the aggregate of the total income determined in accordance with Section 143 or Section 144 or Section 147 has to be reduced.
Therefore, in the entire scheme of arriving at the undisclosed income for the block period there is no scope for estimating the income. It should be on actuals. In other words, the assessing officer cannot estimate the undisclosed income. He has to compute the undisclosed income as provided under Section 158BB(1). If it is a case of estimation of income it falls outside the said provision. In Section 158BB the Parliament has consciously used
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two words, one ‘computing’ and the other ‘assessment’. The word “computation” has not been defined in the Act. The meaning of the word is to be gathered from the scheme of the Act having regard to its ordinary grammatical meaning. In the context of the Act, computation is a calculation, a method of determination by reckoning through calculation. It involves some methodical process with some amount of approximate mathematical precision based on the calculable data available. The word “computation” is completely distinct and different from the word “estimate”, which means: the action of valuing or appraising: an approximate calculation based on probabilities. Under the scheme of the Act, the Assessing Officer has to compute the undisclosed income falling within the block period. He does not estimate or appraise the undisclosed income. As opposed to this the word ‘assessment’ has been defined to mean ‘re-assessment’ as well. The ordinary meaning of the word “assessment” is: the action of assessing; the amount assessed; the determination of the amount of taxation; the
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scheme of charge or taxation; valuation of property or income for the purpose of taxation. The word “assess” is a comprehensive word, and in a taxing statute it often means the computation of the income of the assessee, the determination of the tax payable by him, and the procedure for collecting or recovering the tax. The term assessment is flexible capable of one of many meanings. It will take its colour from the context in which it occurs. It bears a very comprehensive meaning, it can comprehend the whole procedure for ascertaining the imposing liability upon the taxpayer. Therefore, under Section 158BB the assessing authority has to compute the undisclosed income falling within the block period. He is not expected to assess the undisclosed income. It is only in the event of assessment of undisclosed income, if accounts books are not available, if accounts books are destroyed, if there is a suppression of actual sales, taking into consideration the totality of the circumstances, the conduct of the parties, the way in which the accounts are maintained and the incriminating materials which are
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unearthed, it is open to the assessing authority to estimate the income of the assessee. But, when lie is obliged only to compute, it should be based on the calculation which in turn should be based on the material seized during search.”
The Co-ordinate Bench while considering the computation of undisclosed income of the block period with reference to Section 158BB, has observed that in the absence of the word “Computation” defined under the Act, the meaning of the word has to be gathered from the scheme of the Act having regard to its ordinary grammatical meaning. The word “assessment” is the action of the Assessing Officer for determination of the amount of taxation, the scheme of charge or taxation. The term assessed being flexible, it bears very comprehensive meaning. Therefore, under Section 158BB of the Act, the Assessing Authority has to compute the undisclosed income falling within the block period, is not expected to assess the undisclosed
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income. Even in the event of undisclosed income, if the books are not available or the books are destroyed or there is suppression of actual sales, taking into consideration the totality of the circumstances, it is open to the Assessing Authority to estimate the income of the assessee.
We have no reasons to differ from this dictum pronounced by the Co-ordinate Bench. The said ruling being squarely applicable to the facts of the present case, we answer the substantial question of law No.1 in favour of the assessee and against the Revenue.
Re. Substantial Question of Law No.2:
Learned counsel for the Revenue strongly argued that the Tribunal has failed to appreciate the findings of the Assessing Authority as well as the Commissioner of Income Tax [Appeals] inasmuch as the deduction of Rs.92,00,000/- claimed by the assessee towards bogus expenditures. Inviting the attention of
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the Court to the assessment order passed pursuant to the order of remand, it was pointed out that the Assessing Officer has categorically recorded a finding that the receipts in the books of the sister concern, Johnson Mall, Bengaluru do not show any amounts received from the assessee-company for the work on Gooliyanandagunda village. Reference was also made to paragraph 6.15 of the Order of the Commissioner of Income Tax [Appeals] in support of his arguments with respect to Rs.92,00,000/- from the bogus expenditure claimed by the assessee which has been denied and addition has been made. The Tribunal grossly erred in deleting the additions made by the Authority without any valid basis.
Learned senior counsel appearing for the assessee has placed the material before the Court to contend that the Assessing Officer in the first round before the Tribunal, has placed the details for the land
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development charges for the year ending 31.03.1998, 31.03.1999, 31.03.2000. In the said statement, receipts relating to Nandigunda Project, the amount received by the Jansons Investments P. Ltd., were shown as Rs.10,00,000/- as on 31.03.1998. The amount paid by the assessee to the Jansons Architectural and Interior Consultants Bangalorei.e., JAIC is only Rs.10,00,000/- that was reflected in the profit and loss account of the assessee and the same tallies with the details of land development charges and contract receipts of M/s. JAIC, the copies of the same are placed before us in support of his submissions. It is further submitted that the same has been clarified by the Commissioner of Income Tax [Appeals] in his order dated 30.01.2014. Thus, the amount paid by the assessee – M/s. Jansons Investments [P]. Ltd., to M/s. JAIC was Rs.10,00,000/-. The balance amount of Rs.82,00,200/- was with respect to Mrs.Pyari Jan and Iffath Maab. Learned senior counsel has also relied upon the paragraph 6.15 of the
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order of the Commissioner of Income Tax [Appeals] in support of his submissions that Rs.82,00,200/- was paid to M/s. JAIC by M/s. Pyari Jain and not by the assessee herein. Learned Counsel submitted that the Tribunal being the last fact finding authority has meticulously examined all these factual aspects and has dismissed the appeal of the Revenue which deserves to be confirmed, answering the substantial question of law in favour of the assessee and against the Revenue.
We have heard the learned counsel appearing for the parties and perused the material on record.
The crux of the controversy relates to the alleged payment of development charges of Rs.92,00,200/- to M/s. JAIC. It is significant to note that the assessee had not claimed any deduction of Rs.92,00,200/- for any of the assessment years comprising the block period and as such the entire
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exercise made by the Revenue to consider these development charges as bogus expenditure and no development work was done on the land thereby making addition in the block assessment is wholly imaginary. It is further fortified by the order of the Commissioner of Income Tax [Appeals] in paragraph 6.15, wherein it is held thus:
“6.15 A perusal of the statement of account in respect of JAIC, transaction with the appellant and Mrs. Pyari Jan maintain separate account. Even account in the name of Mrs. Pyari Jan for different project. Even as per the statement amount paid to JAIC in the name of Mrs. Pyari Jan claimed to be more i.e., Rs.82,00,200/- whereas profit apportionate only Rs.1,20,807/-.”
It is also noticed in paragraph 6.6 that the break up of amount received by JAIC from various persons in respect of development work for the block assessment period would show as under:
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“6.6 In the written submission dated 07.07.2010 the appellant has given yearwise break-up of amount received by JAIC from various persons in respect of the development work as under: Name of the persons from whom amount received Assessment Year Amount [in Rs. Pyari Jan and Iffath Maab 1998-99 60,03,742 Janson Investment Pvt. Ltd., 1998-99 10,00,000 Pyari Jan 1999-2000 2,32,108 Pyari Jan 2000-01 19,64,350
However, the Assessing Officer and the Commissioner of Income Tax [Appeals] proceeded on the footing that the accounts of JAIC do not show any amounts received from the assessee-company for the Gooliyanandagunda village project. It is trite that if any expenditure is made by M/s. Pyari Jan and Iffath Maab to the extent of Rs.82,00,200/- as observed by the Commissioner of Income Tax [Appeals], no fault can be found with the assessee, making addition of Rs.92,00,000/- in the hands of the assessee treating the same as bogus expenditure when the said M/s. Pyari
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Jan and Iffath Maab are the assessees under the provisions of the Act and returns were filed by them. To establish the factum of Rs.10,00,000/- said to have been incurred as expenditure towards the development charges, the assessee has placed the material evidence by producing necessary documents as per the profit and loss account of the assessee and profit and loss accounts of the JAIC with break-up figures which were made available before the Authorities as well as the Tribunal. The Tribunal having considered these factual aspects, has allowed the appeal of the assessee rejecting the Revenue’s appeal. These issues being related to pure questions of facts, no question of law much less the substantial question of law would arise for determination by this Court in exercising the powers under Section 260A of the Act.
It is well settled that the finding given by the Tribunal on pure questions of facts is not exigible to
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further adjudication while considering the appeal relating to substantial question of law. Hence, we answer the substantial question of law in favour of the assessee and against the Revenue.
For the reasons aforesaid, appeal stands dismissed.
Sd/- JUDGE
Sd/- JUDGE
NC.