IT: If income has already been disclosed in return of income or is available in books of account, then it does not fall in category of undisclosed income or income unearthed during search
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[2013] 38 taxmann.com 174 (Andhra Pradesh)
HIGH COURT OF ANDHRA PRADESH
Commissioner of Income-tax
v.
B. Satyanarayana*
MADAN B. LOKUR, CJ.
AND SANJAY KUMAR, J.
AND SANJAY KUMAR, J.
IT TRIBUNAL APPEAL NO. 29 OF 1999†
DECEMBER 9, 2011
Section 158B, read with section 158BC, of the Income-tax Act, 1961 - Block assessment in search cases - Undisclosed income [Application of Chapter XIV-B] - Block Period 1-4-1985 to 3-1-1996 - Whether undisclosed income is that income which has not been disclosed or would not have been disclosed for purposes of Act - Held, yes - Whether, therefore, if income has already been disclosed in return of income or is available in books of account, then it does not fall in category of undisclosed income or income unearthed during search and, accordingly, special provisions of Chapter XIV-B are not attracted - Held, yes [Paras 15 & 17] [In favour of assessee]
CASE REVIEW
CIT v. Ravi Kant Jain [2001] 250 ITR 141/117 Taxman 28 (Delhi)(para 15) and Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 17) followed.
CASES REFERRED TO
CIT v. Vishal Aggarwal [2006] 283 ITR 326/[2005] 147 Taxman 597 (Delhi) (para 11), CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232/[2002] 124 Taxman 819 (Raj.) (para 11), CIT v. Vivek Dougall [2008] 305 ITR 270 (Delhi) (para 12), CIT v. Vikram A. Doshi [2002] 256 ITR 129/[2003] 127 Taxman 513 (Bom.) (para 12), CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501/118 Taxnan 835 (Bom.) (para 12), CIT v.Ravi Kant Jain [2001] 250 ITR 141/117 Taxman 28 (Delhi) (para 14) and Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 (SC) (para 16).
S.R. Ashok for the Appellant.
JUDGMENT
Madan B. Lokur, CJ. - Although this appeal was admitted on January 22, 2000, no substantial question of law was framed at the time of admission.
2. After hearing learned counsel for the parties, we frame the following substantial question of law :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that income unearthed or detected during the course of a search cannot be assessed in the block assessment on the ground that the assessee has disclosed the transactions in the regular books of account ?"
3. A search and seizure operation was conducted under section 132(1) of the Income-tax Act, 1961 ("the Act") in the residential premises of the assessee on January 3, 1996. The assessee is the managing director of two private limited companies whose business premises were also covered by the search operations.
4. After the search and seizure, a notice under section 158BC of the Act was issued to the assessee for filing a return of income for the block period April 1, 1985, to January 3, 1996.
5. The assessee complied with the notice and filed his return of income declaring the total undisclosed income for the block period as "nil".
6. Thereafter, a notice under section 143(2) of the Act was issued to the assessee and the return was taken up for consideration. Although the Assessing Officer was concerned with five items, we are now concerned with four items, namely : (i) unexplained credit in the name of M. Ch. Dora ; (ii) interest accrued on the above loan ; (iii) unexplained credit shown under the head "unsecured loans" ; (iv) unexplained credit for vehicle maintenance. The Assessing Officer took the above four items into consideration as well as the fifth item (relating to cost of construction of residential building) and calculated the total undisclosed income for the block period at Rs. 4,17,140. On this, the Assessing Officer imposed tax at Rs. 2,50,484.
7. Feeling aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal ("the Tribunal"). The appeal came to be registered as I. T. (SS) A. No. 82/Hyd/97. The appeal was allowed by an order dated March 4, 1999, and the present appeal by the Revenue is against this order under section 260A of the Act.
8. We have gone through the assessment order as well as the order of the Tribunal and find that all the four "undisclosed" items were reflected in the balance-sheets filed by the assessee or his books of account. Notwithstanding this, the Assessing Officer treated all four items as the undisclosed income of the assessee.
9. The Tribunal came to the conclusion that the provisions of Chapter XIV-B of the Act would not be attracted to the present case. The information or details on the basis of which the Assessing Officer passed the assessment order were already furnished to him and were available in the balance-sheets or books of account maintained by the assessee in the normal course of business. All the unexplained credits and the interest accrued thereon were disbelieved by the Assessing Officer who could have otherwise examined their genuineness in the normal course of assessment. The appeal was accordingly allowed by the Tribunal.
10. Learned counsel for the assessee has referred to two decisions in support of his case and in fact, learned counsel for the Revenue did not dispute the propositions laid down in those two cases. As luck would have it, one of us (Chief Justice) was a member of the Bench in both the cases.
11. In CIT v. Vishal Aggarwal [2006] 283 ITR 326/[2006] 147 Taxman 597 (Delhi), it was held, relying upon a decision of the Rajasthan High Court in CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232/[2002] 124 Taxman 819, that if undisclosed income is found on the basis of material seized during the course of a search, then that should be considered as undisclosed income in terms of the scheme of special assessment under Chapter XIV-B of the Act. If no incriminating material is found, or if the material was declared in the return of income or available at the time of assessment, the provisions of Chapter XIV-B of the Act would not be available for determining the "undisclosed" income.
12. Similarly, in CIT v. Vivek Dougall [2008] 305 ITR 270 (Delhi), it was noticed that where the assessee had disclosed the income in his regular return well before the search was carried out, the income said to have been discovered during the course of search cannot be described as undisclosed income. Reliance was placed on a decision of the Bombay High Court in CIT v. Vikram A. Doshi [2002] 256 ITR 129/[2003] 127 Taxman 513, wherein it was held that when a transaction is disclosed in the return, it becomes the subject matter of a regular assessment and not a block assessment. A similar view was also expressed by the Bombay High Court in CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501/118 Taxman 835.
13. Undisclosed income has been defined in section 158B(b) of the Act as follows :
"'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 article, 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 which is found to be false."
14. The above provision makes it clear that undisclosed income is that income which has not been disclosed or would not have been disclosed for the purposes of the Act. In CIT v. Ravi Kant Jain [2001] 250 ITR 141/117 Taxman 28 (Delhi), it has been held that in a block assessment, the adverse material ought to have been unearthed during the search and that the assessment for the block period can be made only on the basis of the evidence found as a result of the search.
15. Therefore, it is clear that undisclosed income is not only that income which would not have been disclosed for the purposes of the Act, but it must be unearthed during the search. Conversely, if the income has already been disclosed in the return of income or is available in the books of account, then it does not fall in the category of undisclosed income or income unearthed during the search.
16. It was recently held by the Supreme Court in Asstt. CIT v. Hotel Blue Moon [2010] 321 ITR 362/188 Taxman 113 that (page 368) :
"Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made. Search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period. The special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Therefore, the income assessable in block assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of search under section 132 or requisition under section 132A of the Act." (Emphasis supplied)
17. In the present case, there is a conclusive finding that the information sought to be relied upon by the Assessing Officer was already available in the balance-sheets or the books of account of the assessee. As such, the material obtained during the search did not lead to the unearthing of income. On the contrary, the Assessing Officer merely had a change of opinion which led him to conclude that what was discovered during the search was undisclosed income. This change of opinion was neither warranted in law, nor could it form the basis of invoking the provisions of Chapter XIV-B of the Act. That being the position, we are of the opinion that the special provisions of Chapter XIV-B of the Act were not attracted.
18. We find no error in the view taken by the Tribunal. Accordingly, we answer the question in the affirmative, in favour of the assessee and against the Revenue.
Regards
Prarthana Jalan
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