India: Case Study: Commissioner Of Income Tax, Chennai Versus vs. Ajit Kumar

In an appeal filed before the Hon'ble Supreme Court i.e Civil Appeal Nos. 10164, 10165 of 2010, 10917 of 2013, 4449, 5255 of 2015, the question raised for consideration was, whether the material found in the course of a survey, in the premises of a builder can be included in Block Assessment of the assessee.

FACTS

The office and residence of a Tamil cine actor were searched on July 17, 2002. This search was concluded on August 21, 2002. Evidence was found during the search that the assessee had indulged in an understatement of his real income relating to the block period from 01.04.1996 to 17.07.2002. On the same day, a survey under section 133A of the Income Tax Act, 1961, was also conducted on the premises of M/s. Elegant Constructions and Interiors Ltd. (hereinafter referred to as "Elegant Constructions"). Elegant Constructions was also the builder and interior decorator who had constructed and decorated the assessee's residential house at Seaward Road, Valmiki Nagar, Thiruvanmiyur. The cost of this investment was disclosed to the Revenue department in the course of regular return filed by the assessee. In the course of survey operation, it was learned that Elegant Constructions had received payment in cash in addition to cheque payment and both cash and cheque payments were recorded in the books of Elegant Constructions. However, the books of accounts of the assessee showed only cheque payment. It was found that the assessee had paid a sum of Rs. 95.16 lakh in cash which was not accounted for. The Assessing Officer, vide order dated August 31, 2004, after having regard to the facts and circumstances of the case, completed the block assessment and, inter alia, held that the said amount is liable to tax as undisclosed income of the block period. Aggrieved by this order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).

In the present case, it is admitted position that the cost ofinvestmentwasdisclosedtothe Revenuedepartment in the course of return filed by the assessee.

QUESTION OF LAW

The main contention was whether the material found in the course of the survey in the premises of the builder could be used in Block Assessment of the assessee?

The CIT (Appeals) held that it was due to the simultaneous search action, the Department had found that the assessee had engaged the services of Elegant Constructions and hence, the same is directly related to the information obtained in the survey proceedings. CIT confirmed the order of assessment and dismissed the appeal.

Aggrieved by the order of CIT (Appeals), the assessee filed an appeal to the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal"). The Tribunal was of the view that information of materials found in the survey operation of the premises of M/s. Elegant Constructions was not related to any material found during the course of the search operation and hence, the same cannot be a basis for making any addition in the block assessment.

An appeal was moved against the Tribunals order to the High Court, The High Court dismissed the appeal vide order dated November 22, 2006 and upheld the decision of the Tribunal.

An appeal was preferred against the order dated November 22nd 2006 before the Hon'ble Supreme Court; The Hon'ble Supreme court held that it is a cardinal principle of law that in order to add any income in the block assessment, evidence of such must be found in the course of the search under Section 132 of the IT Act or in any proceedings simultaneously conducted in the premises of the assessee, relatives and/or persons who are connected with the assessee and are having transaction/dealings with such assessee.

LEGAL JURISPRUDENCE

In the present case, a survey was conducted, and the moot question was whether the cash payment of Rs 95.16 lakh can be added under the head of the undisclosed income of the assessee in block assessment.

The Hon'ble Supreme Court while deciding the said point for consideration, placed reliance on Section 158 BH, whereby, all other provisions of the IT Act were applicable to assessments made under Chapter XIVB except otherwise provided under this Chapter. Placing reliance on Hotel Blue Moon case1and upon the finding that the provisions under Chapter XIVB were devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous year's falling in the block period.

Furthermore, the Hon'ble Supreme Court held that under the power of Survey under Section 133 A of the IT Act, any material or evidence found/collected in a Survey which has been simultaneously made at the premises of a connected person can be utilized while making the Block Assessment in respect of an assessee.

Under Section 158BB, read with Section 158 BH of the IT Act, the material or evidence found under survey was read within Section 158BB under the words "and such other materials or information as are available with the Assessing Officer and relatable to such evidence". The impugned orders were set aside, and the orders passed by the Assessing Officer making the Block Assessment were restored.

CONCLUSION

Chapter XIV-B of the Act provides a special procedure to deal with undisclosed income. Undisclosed income has been defined by Section 158B(b) to mean income which has not been disclosed for the purpose of the Act. Under the provisions of the Act, as it stood at the relevant point of time, assessment of undisclosed income for the block period of 10 years did not have the effect of abrogating the regular assessments that may have been made in any of the assessment year covered by the block period.

The computation of undisclosed income of the Block period has to be done in accordance with the provisions of Section 158BB. The income assessable in Block

assessment under Chapter XIV-B is the income not disclosed but found and determined as the result of the search under Section 132 or requisition under Section 132A of the Act.

Section 158B defines "undisclosed income", and "block period" which are the two basic factors for framing the block assessments. Search is the sine qua non for the Block assessment. The special procedure in Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of the search. It is not intended to be a substitute for regular assessment.

In the present case, the assessment of undisclosed income is on the basis of Section 158BB of the Act, as it stood post the amendment by the Finance Act of 2002.

'BEFORE AMENDMENT

158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previousyearsfallingwithintheblockperiodcomputed, in accordance with the provisions of Chapter IV, 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.

AFTER AMENDMENT

158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previousyearsfallingwithintheblockperiodcomputed, 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, as reduced by the aggregate of the total income, or as the case may be as increased by the aggregate of the losses of such previous years, determined,- . . .'

A reading of the provisions of Section 158BB, as it existed before and after amendment, amply discloses that prior to the amendment, Section 158BB authorized the Assessing Officer to make an assessment of undisclosed income on the basis of evidence found as a result of "search ... or other documents and such other materials ... and relatable to such evidence". The use of the word "other such" clearly points out that such materials or information must have some connection/ relatable with the search and do not constitute independent materials, i.e., independent of the search or not relatable to the search.

The Hon'ble Supreme Court placed reliance on Hotel Blue Moon case and interpreted the cannon of tax law strictly. The Apex Court created an arena in order to help ease the conflicting decisions on the point of law over the scope of Section 158BB of the IT Act. The Court held that any material or evidence found/collected in a Survey under Section 133 A that was undertaken simultaneously to the Search under the provisions of the IT Act, will be part of the computation of Block Assessment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions